Ann de Rouffignac
OGJ Online
HOUSTON, Jan. 3 -- The Institute of Supply Management, formerly the National Association of Purchasing Management, said the manufacturing sector may turn around faster than previously anticipated giving a glimmer of hope that demand for natural gas and electricity will improve later this year.
In a report released Wednesday, the PMI index, considered an advance indicator of how the economy will grow in the future, showed the manufacturing sector of the economy declined again in December but at a slower rate than expected, indicating that economic recovery could come faster than previously thought.
The PMI index was up 3.7 points to 48.2% for December from 44.5 % reported in November.
"The rate of decline has slowed very quickly, giving some hope that recovery may come faster that is generally found in a major downturn," said Norbert Ore, chairman of the group's manufacturing business survey committee.
Bill Gilmer, senior economist and policy adviser to the Federal Reserve Bank of Dallas-Houston branch, said he doesn't expect industrial natural gas demand to recover until the gas intensive industries rebound. These industries include the fertilizer, methanol, chlorine, and ethylene industries.
"These industries have to get on their feet first to be able to show a real improvement for industrial demand for gas," he said. "We don't see any improvement yet."
However, the Natural Gas Supply Association anticipates the manufacturing sector will turn around by the second quarter. Industrial production is expected to grow at 0.8% in the second quarter and 3.2% by the third quarter, said spokeswoman Laurie Cramer. She said the link between industrial production and natural gas demand is clear.
"As the economy comes back, the demand for gas will also come back," said Cramer.
Already two components of the purchasing manager's index, new orders and production, are growing again. New orders rose 6.1% from 48.8% in November to 54.9% in December. Generally an index value 50 or above for new orders for a period of time is consistent with an increase in manufacturing orders.
The PMI index also showed that the overall economy grew for the second consecutive month. The measure for the overall economy is different. When the entire index is above 42% for a period of time, the overall economy is deemed to be expanding, according to the report.
The index is a compilation of replies from purchasing executives at 400 industrial companies. The resulting numbers are seasonally adjusted to allow for repetitive weather and holiday consumption patterns.
The industrial sector accounts for 40% of gas demand in the US economy. While residential demand tracks the weather, industrial demand is tied to the economy.
Contact Ann de Rouffignac at [email protected].
