Manufacturing remains red-hot, but labor issues abound

PMI at 59.3% in March, but skilled worker shortage remains a concern.

By Bob Vavra, CFE Media April 4, 2018
Manufacturing continued its torrid pace in March, as the Institute for Supply Management’s monthly PMI was at 59.3%. While the PMI was 1.5 percentage points lower than February 60.8% figure, the index still finished well above the manufacturing growth level of 50% and topped 58% for the eighth straight month.
The darkest cloud on manufacturing’s horizon remains the difficulty in finding skilled manufacturing workers to support the strong growth forecasts. “Consumption, described as production and employment, continues to expand, with indications that labor and skill shortages are affecting production output,” said Timothy R. Fiore, chairman of the Institute for Supply Management Manufacturing Business Survey Committee.
“Inputs, expressed as supplier deliveries, inventories and imports, were negatively impacted by weather conditions, Asian holidays, lead time extensions, steel and aluminum disruptions across many industries, supplier labor issues, and transportation difficulties due to driver and equipment shortages,” Fiore said. “Export orders remained strong, supported by a weaker U.S. currency. Demand remains robust, but the nation’s employment resources and supply chains are still struggling to keep up.”
Three of the benchmarks for the PMI all were down in March, although none indicated a significant issue at the moment. The New Orders Index fell 2.3 percentage points to 61.9%, the Production Index dropped 1.0 percentage points to 61.0% and the Employment Index slipped 2.4 percentage points to 59.7%.
Another concern for some committee members were the steel and aluminum tariffs imposed by the Trump Administration. Comments from committee members preceded The April 2 announcement by China of retaliatory tariffs. Among the comments:
  • “Supply constraints, extended lead times, capacity constraints, particularly in the electronics components markets, continue to frustrate and drain needed resources, have delayed production schedules and, in some cases, caused missed or delayed sales opportunities.” (Computer & Electronic Products)
  • “International demand is strong for our products in all regions. We are seeing constraints in multiple chemical supply chains due to increased global demand. We are concerned about the impact of tariff and trade wars on demand, but at this time, [there are] no signals that global demand is slowing.” (Chemical Products)
  • “Production targets continue to be a struggle due to shortages of globally sourced components. Many sub-tier components are in short supply for multiple OEMs.” (Transportation Equipment)
  • “In the U.S., we continue to struggle with finding carriers and drivers for shipments.” (Food, Beverage & Tobacco Products)
  • “Much concern in the industry regarding the steel and aluminum tariffs recently [imposed]. This is causing panic buying, driving the near-term prices higher and [leading to] inventory shortages for non-contract customers.” (Machinery)
  • “New tariffs are causing concern across the supply chain. Full impact will take a few weeks to reveal itself.” (Miscellaneous Manufacturing)
  • “Significant price increases in the steel commodity due to (tariffs). The price increases will begin to impact our company’s performance.” (Primary Metals)
  • “Overall, incoming orders are picking up, and supplier pricing is increasing in some commodities.” (Textile Mills)
  • “Hiring continues to slowly increase from February into March and capital spending was allowed a small increase. Oil market conditions have improved and continue to stabilize.” (Petroleum & Coal Products)
Still, the PMI has remains well above the 10% growth level of 55% for more than a year, and the 59.3% figure was well-received. “This indicates strong growth in manufacturing for the 19th consecutive month, led by continued expansion in new orders, production activity, employment and inventories, with suppliers continuing to struggle delivering to demand,” said Fiore.