China's manufacturing sector expanded in August but at a significantly slower pace, as production rates and new orders softened. The Flash China Manufacturing PMI, published by HSBC in conjunction with Markit Economics, fell 1.4 points to 50.3, a three-month low. The PMI's production sub-index retreated 1.5 points to 51.3, also a three-month low.
HSBC also slightly lowered the China's manufacturing PMI for July, as the 51.7 final reading was 0.3 points lower than the initial 52.0 flash estimate for the month. After five straight months of contraction beginning in January, China's manufacturing sector had gained momentum in both June and July, reaching 18-month highs in production and new orders. In July, new export work for Chinese goods makers rebounded to the second-fastest pace in three-and-a-half years.
The gains were encouraging signs that manufacturing was on the mend for the world's second-biggest economy, as China's central government continued to work on ways to stimulate output with new investments in infrastructure projects and monetary easing policies. But in August, both domestic and export demand for Chinese-made goods decelerated, along with both supply and selling prices, prompting tempered remarks from HSBC China Chief Economist Hongbin Qu about the nation's recovery from its economic slump.
"Industrial demand and investment activity growth will likely stay on a relatively subdued path," Qu said in the August flash PMI release.
Qu and other analysts say China's policymakers need to take further stimulus actions to solidify business and consumer activity amid the weakness in lending and manufacturing that is creeping into the domestic economy again.
Unfilled orders at Chinese goods producers continued to climb in August albeit at a slower pace, but job shedding by factories resumed its downward momentum. Payrolls at Chinese manufacturers have shrunk throughout most of this year.
Meanwhile, according to Markit Economics, U.S. manufacturing picked up sharply in August upon the best gains in exports in three years. The Flash U.S. Manufacturing PMI, at a reading of 58.0, climbed to its highest reading since April 2010 with a jump of 2.2 points over the previous month.
Both production and new orders accelerated at U.S. good makers, while manufacturing employment growth was the strongest since March 2013. With the exception of April, when payroll expansion slowed down, U.S. manufacturers have pushed the pace of hiring each successive month this year and have increased headcount for 14 straight months.
The volume of new work received at U.S. factories rose at a sharp pace this month, and the rate of expansion held close to the strongest level since early 2010, according to the PMI. Bookings from overseas customers rebounded from a six-month low in July, while order backlogs increased for the seventh straight month.
The strong flash reading is an encouraging sign that the U.S. manufacturing sector has sustained the momentum it built over the second quarter. According to the federal government, manufacturing expanded at an annualized rate of 6.7 percent from April through June and helped drive the second-quarter GDP expansion of 4 percent.
Tim Moore, Markit Economics' senior economist, said that with sustained hiring in the national job market, "it seems U.S. manufacturers are increasingly confident that the recovery is firmly back on track and are gearing up for a sustained rebound in production schedules over the months ahead."
Equipment Finance Industry Downgrades their Outlook
Equipment leasing and finance executives' confidence of business conditions weakened in August, as fewer expected demand for loans and leases to improve and capital to remain accessible in spite of mostly positive views of the economy, according to the Equipment Leasing & Finance Foundation.
The trade group's Monthly Confidence Index for the Equipment Finance Industry (MCI-EFI) declined 1.5 points to 58.9, its lowest level since December last year, after remaining flat in July. The number of lending executives who believe equipment financing business will improve over the next four months tumbled more than 10 points to 18.2 percent, more than wiping out the 5.1-point gain in July, as they downgraded their outlooks for the rest of 2014 to be flat.
Industry professionals had expected a strong year for lending to fund capital expenditures, but healthy business investment levels this year have not translated into financing growth. Only around one in five executives (21.2 percent) sees demand for equipment leases and loans rising over the next four months, compared with one in four executives (25.7 percent) in July. The weakened demand expectations run counter to nearly one-third of equipment finance executives saying they believe that the U.S. economy will improve over the next six months.
The less bullish outlook for equipment financing also seems at odds with data from recent leading indicators showing strength in capital spending and business investment. The most recent factory orders report by the Commerce Department showed a 3.3 percent surge in core capital goods investment in June, and a private survey tracking metalworking machinery sales showed a pickup in demand that same month.
Equipment finance industry confidence soared to a post-recession high in May, with the MCI-EFI peaking at 65.4, but plummeted four points the following month as greater lending activity failed to materialize, especially among small businesses.
"We continue to see somewhat slack demand from the small business sector as companies continue to be very conservative in their expectations of overall growth," said David Schaefer, CEO of Mintaka Financial. "Overall, we expect demand for capex expenditures to be in the low to moderate range."
Schaefer's remarks mirror the results of a separate survey by the National Federation of Independent Business, a small-business trade group. The NFIB's monthly confidence index for July showed what its chief economist called "mediocre" capital spending, with less than a quarter of small business owners indicating that they have capital investment plans for the next six months. But at the same time, small businesses continued to add jobs for the 10th straight month while business owners' expectations of the economy improved.
Data from the MCI-EFI also suggests that credit is tightening. Just 15.2 percent of executives expect greater access to capital to fund equipment acquisitions for the rest of the year, down 10.5 points from July.
Equipment Finance Industry Downgrades their Outlook
Equipment leasing and finance executives' confidence of business conditions weakened in August, as fewer expected demand for loans and leases to improve and capital to remain accessible in spite of mostly positive views of the economy, according to the Equipment Leasing & Finance Foundation.
The trade group's Monthly Confidence Index for the Equipment Finance Industry (MCI-EFI) declined 1.5 points to 58.9, its lowest level since December last year, after remaining flat in July. The number of lending executives who believe equipment financing business will improve over the next four months tumbled more than 10 points to 18.2 percent, more than wiping out the 5.1-point gain in July, as they downgraded their outlooks for the rest of 2014 to be flat.
Industry professionals had expected a strong year for lending to fund capital expenditures, but healthy business investment levels this year have not translated into financing growth. Only around one in five executives (21.2 percent) sees demand for equipment leases and loans rising over the next four months, compared with one in four executives (25.7 percent) in July. The weakened demand expectations run counter to nearly one-third of equipment finance executives saying they believe that the U.S. economy will improve over the next six months.
The less bullish outlook for equipment financing also seems at odds with data from recent leading indicators showing strength in capital spending and business investment. The most recent factory orders report by the Commerce Department showed a 3.3 percent surge in core capital goods investment in June, and a private survey tracking metalworking machinery sales showed a pickup in demand that same month.
Equipment finance industry confidence soared to a post-recession high in May, with the MCI-EFI peaking at 65.4, but plummeted four points the following month as greater lending activity failed to materialize, especially among small businesses.
"We continue to see somewhat slack demand from the small business sector as companies continue to be very conservative in their expectations of overall growth," said David Schaefer, CEO of Mintaka Financial. "Overall, we expect demand for capex expenditures to be in the low to moderate range."
Schaefer's remarks mirror the results of a separate survey by the National Federation of Independent Business, a small-business trade group. The NFIB's monthly confidence index for July showed what its chief economist called "mediocre" capital spending, with less than a quarter of small business owners indicating that they have capital investment plans for the next six months. But at the same time, small businesses continued to add jobs for the 10th straight month while business owners' expectations of the economy improved.
Data from the MCI-EFI also suggests that credit is tightening. Just 15.2 percent of executives expect greater access to capital to fund equipment acquisitions for the rest of the year, down 10.5 points from July.
Study Says MRO Operations Are Far from Effective
Lack of both planning and tracking of inventory, poor collaboration among company departments, and underutilization or lack of technology are significantly hurting maintenance, repair, and operations (MRO) functions at a wide range of manufacturers, causing plant reliability issues and costly downtime.
In a newly released study, Storeroom Solutions Inc., a third-party provider of MRO management services, cited that more than half of the 200 professionals it surveyed, ranging from maintenance managers to CFOs, admitted that their MRO operations are unable to provide a seamless supply of parts to keep their plants running optimally. "The survey shows that while some companies are becoming more sophisticated in managing their MRO supply chain, most are lagging in the adoption of new processes," said Michael Weinberg, Storeroom Solution's vice president of sales and marketing.
Storeroom Solutions said it spent nine months surveying a diverse array of companies, from food processors to automotive part manufacturers, on their MRO operations. The companies ranged from 100 to 1,000 employees, with MRO budgets as varied as under $2 million to over $6 million. Those who took the survey at these organizations were professionals in purchasing, operations, and maintenance and, to a lesser extent, finance and C-suite members, including vice presidents of purchasing.
What the study found was a discouraging snapshot of part inventory and storeroom management that belie MRO and purchasing best practices. Among Storeroom Solutions' automotive industry respondents, for example, those who said that their MRO storeroom departments either "almost never" participate in operational strategy plans or just "once in a while" numbered as many as those who said "almost always." The survey also determined that 62 percent of companies do not consistently participate in operational excellence strategies.
Storeroom Solutions said there is little to no communication between storerooms and purchasing departments at the organizations it examined. Silos have led to a disconnect that, in turn, is leading to business and operational challenges for both procurement and maintenance professionals. More than 55 percent of the businesses in the survey have more than 50 MRO suppliers, and nearly 32 percent have more than 100 vendors. More than 56 percent of respondents remarked of difficulties with having supplies and parts kitted and ready before scheduled maintenance events.
"A tremendous amount of time and resources are consumed managing that spend in order to maintain production reliability and maintenance effectiveness," Weinberg said, as a result of inefficiencies that come from weak management of MRO practices.
Most companies, Storeroom Solutions said, also fail to take advantage of a range of technologies that can aid MRO inventory tracking and supply visibility. More than 70 percent of surveyed organizations do not use mobile technology solutions that support storeroom operations and inventory control, while more than 42 percent rarely or never use bar-coding, radio frequency identification, or point-of-use vending.
U.S. businesses spend over $500 billion each year on MRO, and the report cites that better interdepartmental communications can bring supplier consolidation and identify other opportunities for cost savings as well as reduce downtime on the manufacturing line.
