Maintenance

Manufacturing index drops for fourth consecutive month

The Institute for Supply Management's (ISM) purchasing manufacturers' index (PMI) slid to 51.2% in July as anxiety about tariffs, inventory and employment weigh on manufacturing companies.
By Chris Vavra August 1, 2019
Courtesy: CFE Media

The Institute for Supply Management’s (ISM) purchasing manufacturers’ index (PMI) slid once again to 51.2% in July. This is down a half-point from June and is down almost 10 points from the 12-month high of 60.8% in August 2018. Manufacturers continue to indicate anxiety about demand and the current trade economy. Prices are decreasing and exports and imports are contracting as well as raw materials.

Even with that, the economic activity in the manufacturing sector did expand in July, and the overall economy grew for the 123rd consecutive month, but the anxiety among manufacturers continues to be an acute issue even as new orders, production and employment grow.

Findings from the report include:

  • The new orders index registered 50.8%, an increase of 0.8 percentage points from the June reading of 50%.
  • The production index registered 50.8%, a 3.3-percentage point decrease compared to the June reading of 54.1%.
  • The employment index registered 51.7% a decrease of 2.8 percentage points from the June reading of 54.5%.
  • The supplier deliveries index registered 53.3%, a 2.6-percentage point increase from the June reading of 50.7%.
  • The inventories index registered 49.5%, an increase of 0.4 percentage point from the June reading of 49.1%.
  • The prices index registered 45.1%, a 2.8-percentage point decrease from the June reading of 47.9%.

“Comments from the panel reflect continued expanding business strength, but at soft levels. July was the fourth straight month of slowing PMI expansion,” said Timothy R. Fiore, chair of the Institute for Supply Management Manufacturing Business Survey Committee in a press release.

Of the 18 manufacturing industries, nine reported growth in July including food, beverage & tobacco, plastics & rubber products and computer & electronic products. The nine industries reporting contraction in July included fabricated metal products, transportation equipment and machinery.

“Respondents expressed less concern about U.S.-China trade turbulence, but trade remains a significant issue. More respondents noted supply chain adjustments as a result of moving manufacturing from China. Overall, sentiment this month is evenly mixed,” Fiore said.

Of the 18 manufacturing industries, nine reported growth in July including food, beverage & tobacco, plastics & rubber products and computer & electronic products. The nine industries reporting contraction in July included fabricated metal products, transportation equipment and machinery.

What respondents are saying:

  • “General business trends are continuing to show signs of weakness resulting from tariffs and cost impacts of importing and exporting.” (Electrical equipment, appliances & components)
  • “All aspects of business remain strong, but we’re starting to see the frictional effect of tariffs on exports.” (Plastics & rubber products)
  • “We are a third-tier supplier to [a major aircraft manufacturer], and it appears its production slowdown of [an aircraft] is having a direct effect on our slowing orders.” (Miscellaneous manufacturing)
  • “Business has slowed, but it is still steady and expected to pick up next month.” (Machinery)
  • “There is a drop in demand for steel products, which has had a major impact on steel prices and the domestic scrap market.” (Fabricated metal products)
  • “The economy is holding steady. All the uncertainty seems to be priced in accordingly, and supply plans are consistent throughout 2019. Business conditions improving yet still facing headwinds in foreign exchange, commodities, and certain direct materials.” (Food, beverage & tobacco products)
  • “[Automotive] sales continue to decline, and forecasts have been reduced due to softer predicted demand. Attention to product cost — not sales price — is increasing.” (Transportation equipment)
  • “Weakness in end markets accelerating rapidly. Continuing to reduce production based on weakening demand and declining current orders.” (Chemical products)
  • “China tariffs continue to be a concern. The uncertainty of future tariffs involving China, Canada, and Mexico is also a concern. China tariffs for electronic parts are averaging 17 percent.” (Computer & electronic products)

Chris Vavra
Author Bio: Chris Vavra has been production editor for Control Engineering since 2014 and has worked for the magazine since 2011. He edits articles on all automation topics and has written on topics including robotics, power generation, IIoT, AI/machine learning, and more. He has a Bachelor of Arts in English Literature degree from North Central College and is also a self-published crime/mystery novelist on Amazon.