Metal fabricators have benefited from manufacturing growth, even in the face of an intensifying pandemic. Getty Images

The last few weeks have been dominated by an incessant election process and surging COVID-19 cases. But there has been some positive manufacturing news lost in the mix. Earlier this month, a key manufacturing and supply chain indicator issued a report with some impressive data for the industry.

October's Institute for Supply Management (ISM) Report on Business revealed an astounding 59.3% PMI (Purchasing Managers' Index). Not only is that up nearly 4% from September's already excellent PMI, it's the highest the marker has been in more than two years. The last time the PMI registered 59.3% was September 2018.

"There just isn't much of a way to downplay the October ISM manufacturing report," said Keith Prather, economist and managing director at Armada Corporate Intelligence. "Across nearly every metric, the manufacturing sector was firing on all cylinders."

Manufacturing as a whole performed well for the third month in a row. It's also the sixth consecutive month that the overall economy has grown after contracting to record lows in April.

Another industry indicator from IHS Markit marked it's highest PMI reading since January 2019. "Producers of investment goods such as business equipment and machinery are leading the upturn in a welcome sign of rising business confidence and corporate investment," Chief Business Economist Chris Williamson said in IHS Markit's October report.

During a recent appearance on Manufacturing Talk Radio, ISM Manufacturing Business Survey Committee Chair Timothy Fiore said that October's PMI number beat out ISM's own predictions by several percentage points.

"Last month I predicted 53% to 55%. I got blown away by 4.3," Fiore said. "The people who do this full-time for a living predicted 56% and we came in at 59.3. And it ties very well with all the other economic indicators."

The real standout on the report was the remarkable spike of the New Orders Index, which registered 67.9%, an increase of 7.7 percentage points from September.

"The big thing here is new orders just exceeded expectations, not only the big six industry sectors, but across all others,"Fiore said. "That's a really strong number."

And of the 18 reporting manufacturing sectors, only one (textiles) reported contraction in new orders and in production.

"I don't think I've seen that in my four years of doing this," Fiore said.

The surge in new orders supported other indexes on the report. Demand expanded, with new export orders growing 1.4 points to 55.7%, indicating that businesses overseas and nearshore want U.S.-made goods. That, in turn, saw the Customer Inventories Index hit its lowest figure (35.8%) since June 2010.

"Empty shelves remain at a 10-year low, which is really good for future production," Fiore said.

What It Means for the Metal Fabrication Sector

This all has boded quite well for metal fabricators. Of the strongest-growing sectors on the ISM report, fabricated metal products ranked top for October. The sector reported noteworthy expansion in just about every subindex: new orders, production, employment, new export orders, imports, and backlog of orders.

That's even with October's overall Price Index also hitting a two-year high at 71.6% and fabricators reporting they paid higher prices for raw materials. Metals like steel, aluminum, and copper all recorded price hikes. Fiore said the slightly faster rate of backlogs shows that new-order intakes were enough to fully offset production outputs and maintain an acceptable level of backlog.

The anonymous metal fab panelist stated this in the report: "We continue to see increases in customer demand. We still are not back to pre-COVID-19 levels but are continually improving."

And, I know we've said it before, but it bears repeating: Fabricators and other manufacturers have navigated the pandemic quite well. At this point, operating through the pandemic is old hat for essential shops that have been pivoting through all the fluctuating mandates and restrictions since March.

"Many companies introduced advanced technologies to help reduce reliance on physical workers and that automation investment was starting to pay off, increase output efficiency, and reduce backlogs," Prather said. "Efforts to improve safety for those employees have helped these companies boost output in a normal operating environment. And, they have determined that they can operate in a leaner environment, which also improves profits."

The manufacturing trends seen at the end of Q3 and start of Q4 have given many fabricators more confidence compared to Q2. That’s been due to customer demand in segments like new housing, appliances, and automotive.

"I pretty much felt that people had given up on the fiscal year from a plan standpoint and that they were just going to kind of get themselves positioned for 2021," Fiore said. "But I'm going to take that back a little bit based on what you're seeing here."

What Metal Fabricators and Metal Formers Are Saying

METALfx, a midsize fabricator in northern California, said encouraging data from September and October has reflected positively on its operation.

"Our consensus was that September felt like we were gaining traction, and the numbers seemed to support that position," Connie Bates, director of business development at METALfx, wrote in an email. "In September METALfx shipped 93.5% of forecast versus just 72.3% shipped in May. In September we booked 94.8% of projected versus 72% in May. September also felt less chaotic than May. In May we were flooded with customer requests for 'push-outs.' In September we received requests for 'pull-ins,' and some for customers who had pushed items out just months before."

Todd Swift, owner of The Metal Shop in Pleasant Prairie, Wis., said his small job shop also had a better Q3 compared to the rest of the year, which was aided by their ability to correct some inefficiencies and pick up work because other shops were closing.

"We are by no means comfortable – being a job shop is always a bit of the unknown," he said in an email. "But we are optimistic we can capitalize on openings in the fabrication world."

In addition to the pandemic, The Metal Shop also had to cope with Swift recovering from a stroke.

"My team has done phenomenal," he said, "and has proven to me that you hire good people who will carry the company through the double whammy of a pandemic and an owner recovering from a major medical issue."

Mark Sypniewski, plant manager for Florida stamping operation Wrico, said work at their facility is par for the course even with COVID-19.

"As a whole, I would say that we had a better-than-expected year. We are even anticipating about the same revenue this year as last,” Sypniewski said in an email. "Although we are primarily a stamping facility, we do a lot of CNC machining as well. Here in the Orlando metro area, there is more machining than anything else these days."

And other Wisconsin metal fab shop, Brunner Fabrication, said their business has only boomed throughout 2020.

"We haven't missed a beat since Day 1 of COVID,” COO Matt Brunner said in an email. "We have continued with rapid growth this whole year and have not slowed down. We have been on overtime every week this whole year. Since October of last year, we have invested over $2 million in equipment and building space."

Brunner said the secret to its aggressive growth in a turbulent 2020 isn't really much of a secret at all: it's just a matter of having the capability and willingness to serve any customer.

"I think it depends on what sector your business is based in," he said. "The demand is there; you just need to find it."

What's Ahead for Manufacturers?

Going back to the October ISM report, the fact that the Inventories Index grew 4.8% (51.9%) from the previous month shows that supply chains have improved enough to likely meet production demand and grow inventory in the last two months of 2020.

"It's the first time we've been in expansion in inventory for quite some time," Fiore said. "I think that more reflects that we're stocking for the future, January and February. And that's a positive element. We're not as concerned about the bottom falling out in November and December."

When talking about the future of manufacturing, we of course have to address the elephant in the room: What does the outcome of the presidential election mean for the industry?

At this point in an election year, we'd usually have an officially declared president-elect and a transition process underway. But this is 2020, and, of course, nothing is ordinary. While Joe Biden has been named president-elect, Donald Trump has refused to concede and has launched investigations into the voting results of some key states.

Fiore said that, along with COVID-19, the No. 1 looming question mark for the future is the manufacturing economy: addressing tariffs, the trade war with China, USMCA, and uncertainties that the industry faces.

"Everyone just wants it to be over. We’ve been living this thing for four years," he said. "And the real issue has been the uncertainties, especially when we entered the real tariff battle with China for the past couple of years. I think investment has been generally frozen for the last year and a half because of uncertainties. Business can't stand that."

But however this plays out, Fiore believes the manufacturing industry has put itself in a position to continue to expand no matter which administration is in the White House.

"I think with either administration, we're going to grow. There's no doubt," Fiore said. "One might lead towards a big infrastructure package, which would be good for a lot of different industries in the manufacturing sector. And I think the other one is probably looking at sustainable tax cuts, at least for individuals. Either way, we’re going to know. Then we can make decisions."

Source: the fabricator