The struggles of local manufacturers continued into May as the flow of orders coming into Buffalo Niagara factories dried up.
Business at local manufacturers has been contracting for four straight months, even as some national indicators are showing improvement at factories after a difficult 2015. Jay K. Walker, a Niagara University economist, thinks the local slump could reflect the strong U.S. dollar, which makes products made by U.S. manufacturers more expensive in overseas markets.
“In spite of the national indicators being reasonably good of late. I’m thinking – at least for manufacturers – if there are some that are more reliant on exports, the continued strength of the dollar might be hurting business,” said Walker, who compiles the monthly business activity index for the Institute of Supply Management – Buffalo.
That index has shown that business has been weakening at local manufacturers since February – the longest-lasting downturn since 2009. The index fell to 44.4 during May, down from 48.5 in April. Anytime the index drops below 50, it’s a sign that the manufacturing economy is weakening.
Behind the May slump was a steep drop in new orders, which fell to a nine-month low as just one in every 11 company surveyed said bookings increased during May, down from 1 in 3 during April. Weakening order flow can be a sign that production will turn downward in the coming months.
At the same time, inventories shrank for the 10th straight month and higher energy prices pushed up commodity costs at local factories.
That offset two bright spots in the May report: Modest growth in both local factory employment and production.
A little more than 1 of every 3 companies surveyed added workers last month, while nearly half said production increased. Both were slightly better than April.
“The U.S. industrial economy is slowing,” said Timothy T. Tevens, the CEO of Amherst material handling equipment maker Columbus McKinnon during a conference call last week. “I think it’s soft. I think it definitely is a bit of a recession going on here. I hate to use that word, but I do think that is definitely slowing. Not a lot of investment.”
Tevens noted that industrial capacity utilization rates in the U.S. has dipped to 75.4 percent – its lowest since late 2010.
“It does appear as if we may have seen the bottom of this slide, as in the last five months or so it seems to be hovering around 75 percent,” he said.