ISM: New Orders, Production and Employment Growing in Manufacturing Sector



Economic activity in the manufacturing sector expanded in July, and the overall economy grew for the 111th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business.

The report was issued by Timothy R. Fiore, CPSM, C.P.M., chair of the Institute for Supply Management (ISM) Manufacturing Business Survey Committee. The July PMI registered 58.1%, a decrease of 2.1 percentage points from the June reading of 60.2%.

The New Orders Index registered 60.2%, a decrease of 3.3 percentage points from the June reading of 63.5%. The Production Index registered 58.5%, a 3.8 percentage point decrease compared to the June reading of 62.3%. The Employment Index registered 56.5%, an increase of 0.5 percentage point from the June reading of 56%. The Supplier Deliveries Index registered 62.1%, a 6.1 percentage point decrease from the June reading of 68.2%. The Inventories Index registered 53.3%, an increase of 2.5 percentage points from the June reading of 50.8%. The Prices Index registered 73.2% in July, a 3.6 percentage point decrease from the June reading of 76.8%, indicating higher raw materials prices for the 29th consecutive month.

“Comments from the panel reflect continued expanding business strength. Demand remains strong, with the New Orders Index at 60% or above for the 15th straight month, and the Customers’ Inventories Index remaining low. The Backlog of Orders Index continued to expand, but at lower levels. Production and employment continues to expand in spite of labor and material shortages. Inputs — expressed as supplier deliveries, inventories and imports — had expansion increases, due primarily to negative supply chain issues, but at easing levels compared to the prior month. Lead-time extensions, steel and aluminum disruptions, supplier labor issues, and transportation difficulties continue. Export orders expanded, but at lower levels. Price pressure remains strong, but the index softened for the second straight month. Demand remains robust, but the nation’s employment resources and supply chains continue to struggle. Respondents are again overwhelmingly concerned about how tariff-related activity, including reciprocal tariffs, will continue to affect their business,” Fiore said.

Of the 18 manufacturing industries, 17 reported growth in July, in the following order: textile mills; electrical equipment, appliances & components; apparel, leather & allied products; computer & electronic products; petroleum & coal products; paper products; printing & related support activities; nonmetallic mineral products; machinery; plastics & rubber products; miscellaneous manufacturing; fabricated metal products; food, beverage & tobacco products; furniture & related products; chemical products; wood products; and transportation equipment. The only industry reporting a decrease in July is primary metals..

What Respondents Said:

  • “Global demand is still strong. Working on contingency plans for the Chinese tariffs. We will probably onshore most of that material. Labor availability is becoming an issue.” (Computer & Electronic Products)
  • “As a result of new tariffs on materials to/from China, we are taking measures to move impacted materials ahead of effective dates, which in some cases is resulting in holding higher inventories.” (Chemical Products)
  • “Steel cost increases are causing a lot of negotiations. The increases are real and will affect costs beginning in the third quarter of 2018.” (Electrical Equipment, Appliances & Components)
    “Reviewing the business case for importing manufactured parts from China, as new tariffs will lead to increased costs that we will pass along to our domestic customers.” (Transportation Equipment)
  • “Corn and soybean meal costs are reducing. Labor continues to be a struggle to fill open positions.” (Food, Beverage & Tobacco Products)
  • “The steel tariffs are a concern to us. We have already seen steel prices increase due to the threat of the tariffs and are seeing kickback from our customers due to the higher prices. We are concerned that the end customer will go to off shore to purchase the finished product.” (Fabricated Metal Products)
  • “Business is moving along at a brisk pace, outperforming the annual plan year-to-date (calendar year financials). However, internationally, nationally and locally, we are finding many manufacturers behind schedule due to capacity constraints. They are stating their order intake is heavy and/or they cannot find qualified employees to get all the work done.” (Machinery)
  • “Tariffs are [resulting in] customs inspection-time increases on imported raw materials from China. Logistics seems to be improving, but we are seeing a [continuing] tight chemical bulk tanker market.” (Plastics & Rubber Products)
  • “Our customer demand is high, but supply of aluminum is tight. Also, tariffs are negatively affecting our bottom line, as we are unable to pass increases to all of our customers. Plus, we are seeing increases in our construction costs because of the steel price increases. Labor market is extremely tight for professional personnel, plant technicians and support associates.” (Primary Metals)
  • “The so-called trade war is now taking its toll on business activity, resulting in substantial reductions to new export orders. China has all but stopped taking orders, causing inventories to build up in the U.S. Domestic business is steady. However, it is too small to carry the load that export markets have retreated from. As a result, we will be meeting as a corporation next week to recast our second-half sales and revenue projections.” (Wood Products)


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