Don't Jump Yet
Posted: February 14, 2008
A national report about bad times in service sectors
triggered a major drop in U.S. stocks Tuesday - no wonder. January was the worst
month for services in nearly six years and the report caused most commentators
to announce the recession is now all-but officially underway.
However, news coverage in today's Seattle Times and the Seattle Post-Intelligencer failed to report a similar report that shows manufacturing continues to grow across the nation and that manufacturing in western Washington continues to grow faster still.
The reports about services and manufacturing both come from the highly regarded and highly influential Institute of Supply Management (ISM). The reports are based on surveys of supply managers for monthly purchase orders, sales, purchases, etc. ISM reports are indexed to the number 50 - numbers higher than 50 document business growth while numbers lower than 50 show shrinkage.
Tuesday's national report for services showed those sectors scored 44.6 in January – the worst month for services since March 2003. But, the IMS survey of manufacturing showed that the cheaper dollar and rising exports helped the national manufacturing index grow from 47.7 in December to 50.7 in January while the Western Washington index rose from 65.1 to 69.8.
The Western Washington IMS report shouldn't come as a complete surprise. Last week Boeing reported stellar sales and earnings for 2007 along with a record backlog of commercial aircraft and defense orders valued at a staggering $337 billion. But Boeing was not the only bright spot in the production side of the state's economy as the New Year dawned.
According to data gathered by Seattle Industry through the Northwest Industrial Index, Washington state manufacturing showed stronger sales than the rest of the state economy through the third quarter of 2007, with manufacturing sales up 11% compared to 2006, while revenues for the entire private sector grew by 9%.
The sales numbers are drawn from gross business revenues reported to the Washington State Department of Revenue for B&O and other tax purposes, and the revenues must be submitted by all companies for their operations within the state. According to this data, manufacturing revenue in Washington has been growing faster than those for the whole economy every year since 2004.
According to 2007-2006 comparisons, manufacturing sectors with stronger than average revenue growth included: food products, up 18.5%; industrial textiles, 64.6%; sawmills, 14.6%; paper products, 13%; primary metals, 19% (including 42% growth for aluminum producers); chemicals, 13.8%; fabricated metals, 14.3%; machinery, 11.3% (including 24% growth for farming and construction equipment); computer parts, 15.1%; commercial aircraft and parts, 22%, and boat builders, 37.9%.
While national construction slumped, Washington construction revenues grew 13% over 2006, but companies making building supplies fare as well. Sales for cement and glass makers were only up 5%, asphalt, 9%, electrical systems and appliances, 3.7%, and declining sales were recorded for companies making plastic pipes and other plastic or rubber goods, down 3%, and plywood revenues dropped by .05%, reflecting Washington's role as a national plywood producer.
At the same time, statewide retail sales grew just 4% over 2006, and the sales figures were far worse for many state service sectors.
Gross business revenues were down 3% for information services; 10% for insurance companies, 6.4% for the real estate sector; 7.7% for legal services, and nearly 5% for telecommunications companies.
As befits the uncertain times, illness was a growth factor. The state's health care sector enjoyed 20% growth, nearly keeping up with the growth rate for aircraft production revenues.
The good news about Washington manufacturing comes with some caveats. The growth rates for some sectors look good because they compare with poor times for service providers and high fuel and commodity prices have a bigger impact on manufacturing than, say, lawyering.
But the good news also demonstrates that good things are still happening in the economy. They just don't get the same amount of ink as the media pursues every angle to prove the U.S. economy is just as bad as the media says it is.
The national and regional IMS surveys also show that when Boeing gets well, nearly all of us feel better.
The IMS surveys show that western Washington manufacturing performed about the same as the national average from 2000 through 2003. But a 10 point gap appeared in 2005, following the Boeing commercial airplane turn around, Tuesday's report showed the bulge continued through January, with our local 69.8 score compared to 50.7 for the nation.
