Business at factories in area falls again
Manufacturing drops for 2nd straight month
The recession might be over, but local manufacturers aren’t out of the woods yet.
An index that measures business activity at the Buffalo Niagara region’s factories weakened for the second straight month during October, illustrating the fragile state of the local manufacturing sector.
With production dropping and the flow of new orders declining to their lowest levels since the beginning of the summer, the business activity index prepared by the National Association of Purchasing Management-Buffalo weakened to 47.4 last month, from 48.7 in September.
Because an index reading below 50 is a sign of a contracting economy, the October report shows that the local economy continues to sputter. The index has been in declining territory for 12 of the last 13 months, with only a brief growth spurt in August interrupting the downward path of the region’s manufacturing base.
“The local economy is contracting but at a very slow rate,” said Arthur Aramino, chairman of the group’s business survey committee.
Mikhail Melnik, a Niagara University economist, said the weakness in new orders, coupled with a slower decline in inventories at local manufacturers, suggests that the factory sector could weaken during the fourth quarter, after being relatively stable during the summer.
Melnik believes that much of the improvement in the economy during the summer was driven by federal stimulus programs, including the “Cash for Clunkers” initiative that fueled a jump in auto sales and the first-time home buyer tax credit that has buoyed home sales.
“This trend shows the fragility of the government-driven growth environment,” he said.
Nationally, manufacturing activity grew in October at its fastest pace in more than three years, according to the Institute for Supply Management. It was driven by government spending, businesses’ need to rebuild their inventories and higher demand from overseas.
The institute’s manufacturing index grew in October at the fastest pace since April 2006. The index read 55.7 last month, compared with 52.6 in September. It’s the third straight reading above 50, which indicates growth.
The local survey moved in the opposite direction, with production declining at the region’s factories for the first time since July. Just 20 percent of the purchasing managers reported an increase in output at their firms, down from 33 percent in September. The group’s production index dipped into negative territory at 46.9, compared with 53.3 in September.
The flow of new orders, which had been a bright spot for the previous two months, took a sharp turn for the worse. Just 4 percent of the managers said orders increased during October, down from 53 percent in September, pushing the group’s new order index down to a three-month low of 43.4 after it reached 60 in September.
On the bright side, employment at local factories grew for the first time in a year, with 20 percent of the firms saying they added workers last month, up from none in September. That pushed the group’s employment index to a 13-month high of 56.7.
“Whether the increase in employment can be sustained will certainly depend on growth in new orders and production,” Aramino said.
Inventories declined at a slightly slower pace, while commodity prices rose at a less robust pace.
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