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Troubled U.S. Manufacturers Might Benefit From Corporate Budgeting Software

Data provided by the Institute for Supply Management (ISM) reveals that U.S. manufacturing activity contracted in November, and sector firms struggling to cope with a challenging economic climate might benefit from using specific software in their budgeting process.

Contracting U.S. Manufacturing
According to a statement released by the ISM on December 3, the organization's factory Purchasing Managers' Index (PMI) fell to 49.5 in November from 51.7 in October. Any reading for the index below 50 represents deterioration in the industry, and a figure above 50 signifies expansion.

The November figure released by the ISM fell far short of the predictions of economists participating in a Bloomberg poll, who provided a median forecast of 51.4. A total of 83 market experts took part in this survey, and contributed estimates ranging from 49 to 53.5. The monthly reading was also the lowest for the index since the figure of 49.2 created in July 2009.

The New Orders Index had a reading of 50.3 percent during the month, which was 3.9 percent lower than in October. November was the third month in a row where this measure signified expansion, after it the reading was below 50 for three consecutive months.

Manufacturing firms that are coping with the current environment of economic uncertainty can help account for the potential fluctuations in their sales and other key metrics by using accounting systems that are best suited for their needs. Picking the right software can help them to automate various tasks and provide decision makers with real-time data on important figures.

PMI and Economy
The statement noted that while the figure was below 50 and therefore slightly negative for the manufacturing sector, any reading of the PMI that is above 42.6 usually means that the economy is growing. According to these figures, November was the 42nd month that the economy expanded.

"The past relationship between the PMI™ and the overall economy indicates that the average PMI™ for January through November (51.8 percent) corresponds to a 3.1 percent increase in real gross domestic product (GDP). In addition, if the PMI™ for November (49.5 percent) is annualized, it corresponds to a 2.3 percent increase in real GDP annually," Bradley J. Holcomb, chair of the ISM Manufacturing Business Survey Committee, said in the statement.

Causes of Slowdown
Although various factors were credited with creating the slowdown in U.S. manufacturing activity, one event in particular that was singled out was the looming fiscal cliff, according to Bloomberg. The potential combination of higher taxes and lower government spending, lackluster demand from overseas companies and consumers and businesses that are wary of investing in equipment and software are all combining to hamper manufacturers.

"We could be doing a lot better than we are doing if we had a coherent fiscal policy," Ward McCarthy, chief financial economist at Jefferies & Co. Inc. in New York, told the news source. "We have a recovery in housing that’s been underway for a year and a half now. More recently, it’s been picking up steam. This will help offset what’s going on in other places."

Holcomb specifically referenced the fiscal cliff in an interview, indicating that this potential headwind was mentioned more frequently by manufacturers than any other, according to the media outlet.

"We’re picking up scarcely little about the storm, and it wasn’t talked about that much, certainly relative to the fiscal cliff," Holcomb stated. "Their concern is about taxes and what that will mean for business overall. For the lack of insight, they’re just slowing down and keeping a foot on the brake. That shows up in employment, shows up in inventories."

What is your manufacturing firm doing to proactively navigate the current economic environment? 

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