Manufacturing index grows, but concern looms about coronavirus

The purchasing manufacturers' index (PMI) slid to 50.1 in February, which shows overall growth, but there are major concerns about the coronavirus and what it will mean for the manufacturing industry.

By Chris Vavra March 2, 2020

Economic activity in the manufacturing sector grew in February with the purchasing manufacturers’ index (PMI) reporting growth for the 130th straight month. This news of growth, however, is hampered as the manufacturing industry is starting to feel the impact of the coronavirus in manufacturing, particularly as it relates to the supply chain and international business.

“The PMI remained in expansion territory, but at a weak level. Demand slumped, with the new orders index contracting at a weak level, despite new export order expansion, the customers’ inventories index remaining at ‘too low’ status and the backlog of orders index expanding for the first time in several months, but at a slow rate,” said Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management (ISM) Manufacturing Business Survey Committee.

“The February PMI registered 50.1%, down 0.8 percentage point from the January reading of 50.9 percent. The new orders index registered 49.8%, a decrease of 2.2 percentage points from the January reading of 52%. The production index registered 50.3%, down 4 percentage points compared to the January reading of 54.3%. The employment index registered 46.9%, an increase of 0.3 percentage point from the January reading of 46.6%. The inventories index registered 46.5%, 2.3 percentage points lower than the January reading of 48.8%.

“Global supply chains are impacting most, if not all, of the manufacturing industry sectors. Among the six big industry sectors, food, beverage & tobacco Products remains the strongest, followed by computer & electronic products. Petroleum and coal products is the weakest. Overall, sentiment this month is marginally positive regarding near-term growth,” Fiore added.

What respondents are saying:

  • “There are always supply chain challenges with Lunar New Year shutdowns, and this year is no different. Coronavirus is wreaking havoc on the electronics industry. Companies are delayed in starting up production, which is resulting in longer lead times, constraints and increased pricing. It’s a mad dash to dual source stateside in case China isn’t back online soon.” (Computer & electronic products)
  • “January started out strong, but the effects of the virus in China [and] the continued grounding of the 737 Max have suppressed new orders. We are still expected to be flat to slightly up [year-over-year] for 2020 sales, based on those issues.” (Chemical products)
  • “Layoffs are here.” (Transportation equipment)
  • “Coronavirus and its impact on the supply chain: We will see some softness in demand, but also [experience] havoc on items sourced from China that may cause significant delays to production.” (Food, beverage & tobacco products)
  • “Energy markets seem to be responding to a potential drop in demand that may be related to responses [to] the coronavirus.” (Petroleum and coal products)
  • “Coronavirus continues to be front and center as a major supply chain risk to our company. Access to information in China — from our supply base and customers — is slow to come by.” (Fabricated metal products)
  • “Sales continue to be strong, with the supply base able to support as required. The major concern is the China virus and what that crisis could affect in getting parts. The company is putting plans in place to source out locations, especially in the U.S., for parts.” (Machinery)
  • “Business continues to be strong. We had a little January slowdown, but February has been fantastic.” (Plastics & Rubber Products)
  • “We have seen an increase of sales for our products.” (Furniture and related products)
  • “Current favorable forecast to budget for first-quarter sales.” (Primary metals)

The true picture of what impact the coronavirus is having on the global manufacturing industry likely won’t be seen until next month’s report. The peripheral effects, particularly with major trade shows in the near-future, are already being felt.

Author Bio: Chris Vavra is web content manager for CFE Media and Technology.