The growth spurt by the Buffalo Niagara region’s manufacturers stretched into its third month during May but also showed signs that it may be losing steam.
A new survey of local purchasing managers found that growth at the region’s factories slowed from the five-month high set during April as manufacturers cut back on production and hiring while the early spring surge in new orders died out.
While the National Association of Purchasing Management said Buffalo’s index of business activity at local factories continued to show growth, with an index reading of 52.8, the expansion lost some of the momentum it had built up earlier this spring when a surge in new orders pushed the index to 54.7 in April. An index reading of more than 50 signals growth, while one below 50 is a sign of a declining economy.
That rush of new orders ended in May, which could be a worrisome sign for the vigor of the local manufacturing sector in the coming months, said Jay K. Walker, the Niagara University economist who compiles the report, which offers one of the earliest glimpses at how a key part of the local economy is faring.
“The results from the past two months have generally been positive, although there may be cause for concern looking to future months,” he said.
Much of that concern centers around the spike in inventories at local factories last month and the corresponding slump in new orders, Walker said. “Inventories increasing can be good or bad. Is it due to increased expectations of future sales, or lower-than-anticipated current sales?”
Inventories jumped to their highest level since last August, with more than half of the managers surveyed reporting that their firms added to their stockpiles during May.
At the same time, the flow of new orders, which accounted for most of the factory sector’s strength during March and April, weakened during May, with nearly 45 percent of the firms reporting fewer orders.
“If orders slow and are accompanied by an increase in inventories, it might signal future decreases in production,” Walker said. But if the flow of orders strengthens again, it could allow businesses to work down those inventories and clear the way for more production in the coming months.
As it is, production has been weak at local factories throughout the year, declining during each of the first five months of 2013, although the May drop was the smallest of the year, leaving the group’s production index at 49.5, just shy of the 50 reading that separates growth from decline.
As a result, hiring remains sluggish at local factories, with the group’s employment index sliding to a four-month low of 42.8 during May, with just one of every nine companies surveyed reporting that they hired more workers last month.
Factory Growth Slows
Source: National Association of
Purchasing Management – Buffalo
NOTE: Index reading above 50 indicates growth; below 50 indicates a decline