Despite tariff fears, PMI jumps 1.5 percentage points

Index hits 60.2% while manufacturers worry about trade war and supply chain issues.
By Bob Vavra, CFE Media July 2, 2018
Courtesy: Bob Vavra, CFE Media

Even with the evolving global tariff crisis on the horizon, manufacturing rocketed past the 20% growth threshold in June, as the Institute for Supply Management’s (ISM) monthly purchasing manufacturers’ index (PMI) leaped 1.5 percentage points to 60.2% in June. It was the 22nd straight month of growth in the manufacturing sector, defined by a PMI above 50.0%. The index also hit its highest level since a 60.8% reading in February.

Manufacturers continued to reap the benefits of a strong economy despite the tariff escalation, said Timothy Fiore, chairman of the ISM Manufacturing Business Survey Committee.

"Consumption, described as production and employment, continues to expand in spite of labor, skill and material shortages," Fiore said. "Inputs, expressed as supplier deliveries, inventories and imports, had expansion increases, due primarily to negative supply chain issues."

Fiore noted despite the optimistic numbers from the PMI, which is averaging a 59.0% reading for the last 12 months, there was concern on several fronts apart from tariffs. "Lead-time extensions, steel and aluminum disruptions, supplier labor issues, and transportation difficulties continue," Fiore said in a press release. "Price pressure remains strong, but the index saw its first expansion softening since November 2017. Demand remains robust, but the nation’s employment resources and supply chains continue to struggle."

For those companies affected by tariff changes and global trade, there are a number of concerns, as were reflected in the comments from committee members:

  • "We export to more than 100 countries. We are preparing to shift some customer responsibilities among manufacturing plants and business units due to trade issues. For example, we’ll shift production for China market from the U.S. to our Canadian plant to avoid higher tariffs. Within our company, there is a sense of uncertainty due to potential trade wars." (Food, Beverage & Tobacco Products)
  • "The Section 232 steel tariffs are now impacting domestic steel prices and capacity. Base steel prices have already increased 20% since March." (Fabricated Metal Products)
  • "Transportation costs are going through the roof right now, which definitely impacts the decisions we’re making with regard to quantities we’re bringing in versus truckload and LTL." (Furniture & Related Products)
  • "The economy and product demand still continue to be strong. Having trouble finding people [to fill] blue collar positions. Lead times for parts and materials are moving out, and we are seeing commodity cost pressures increases with the threat of tariffs. Additionally, suppliers are asking for more price increases." (Machinery)
  • "The uncertainty of U.S. tariffs and the Canada/Mexico/E.U. retaliatory tariffs continues to cloud strategic planning efforts. Contingency planning (for tariffs) is consuming large amounts of manpower that could be used for more productive projects. The tariffs are improving margins in our raw material businesses; however, our businesses which are further up the supply chain are seeing significant inflation." (Miscellaneous Manufacturing)
  • "The steel tariffs continue to drive uncertainty. Projects and services using steel have limited days that prices are good for. Trucking is tight, requiring advanced planning and increasing costs." (Paper Products).
    Bob Vavra, content manager, CFE Media, bvavra@cfemedia.com