Manufacturing executives in California are more excited about their growth prospects than they’ve been in nearly 20 years.
That’s the takeaway from a recent Chapman University polling of purchasing managers at manufacturing companies.
Professors at the university’s A. Gary Anderson Center for Economic Research surveyed buyers from throughout the Golden State about their expectations for production, inventory, commodity prices, supplier deliveries, prospects for new orders, and hiring plans.
The poll revealed that purchasing managers in California expect an expansion of economic activity as well as an acceleration in the rate at which economic expansion is expected to take place.
The index for “employment” (hiring plans) now stands at 65.4 for July through September, “indicating that employment in [California] manufacturing is expected to increase at a higher rate in the third quarter.”
Notably, the study also revealed that “no industry reported an expected decrease in commodity prices.” Indeed, the index now stands at 93.4, “the first time that the index has reached into the nineties” since survey data going back to 2002.
Driving this increase in expectation for accelerating commodity prices is purchasing managers’ belief that supply deliveries are going to be more delayed than they have been.
The “index for supplier deliveries is expected to increase ... to 75.5 in the third quarter, indicating that supplier deliveries are expected to be slower at a higher rate in the third quarter,” according to the Chapman economists. “No industry reported an expectation of faster supplier deliveries.”
Individual readings above 50 for the indices built by the professors indicate growth; readings below 50 indicate contraction.
The economists also cited a number of survey respondents. An executive at a paper company said, “Freight is a mess.” A purchasing manager at a machinery fabricator said, “Just-in-time is out the window. Better to have inventory and be able to run than lose opportunity.”
A purchasing manager at a fabricated metals products company offered insight on the root causes of the slowdowns.
“Many customers were forced to close during COVID,” the manager said. “When they finally reopened, they realized they were behind in their orders and inventory. This caused a mass ordering to occur to make up for lost time. We are also seeing an increase in ordering due to less competitors. We have been working overtime for the last two months and anticipate this to continue through at least the third quarter of this year, maybe until the end of the year to keep up with continually increasing demand.”
The data corroborates his thesis: the index for new orders from the companies where the survey supply managers work increased from 67.5 in the second (April to June) quarter to 72.9 during the third quarter.
Nearly 60 percent of respondents expect new orders to increase during the third quarter. Only 10.4 percent of surveyed purchasing managers expect new orders to decrease. That difference—48.2 percentage points—is an all-time high, “indicating that new orders are expected to increase at a higher rate in the third quarter.” If so, it would require the higher employment and drive the higher commodity costs the purchasing managers expect.
