PMI hits highest level in 14 years as demand remains strong

Manufacturing index reaches 61.3%; trade, labor concerns linger
By Bob Vavra, CFE Media September 6, 2018

CFE Media file photo.With demand for manufactured products still high, the monthly PMI Index from the Institute for Supply Management (ISM) hit its highest level in 14 years in August. The PMI jumped 3.2 percentage points to 61.3% the second time in three months the index had been above the 20% growth rate of 60%.

Despite concerns from committee members about tariffs, employment and the strength of the manufacturing supply chain, Timothy R. Fiore, chairman of ISM’s Manufacturing Business Survey Committee, said the fundamental numbers for manufacturing remained bullish. "Demand remains strong, with the New Orders Index at 60% or above for the 16th straight month, and the Customers’ Inventories Index remaining low," Fiore said in a press release. "The Backlog of Orders Index continued to expand, at higher levels compared to the previous month. Consumption improved, with production and employment continuing to expand, at higher levels compared to July, despite shortages in labor and materials.

"The Index it its highest level since reaching 61.4% in May 2004, but Fiore said committee members remains cautious about the impact of trade issues and other challenges. "Demand is still robust, but the nation’s employment resources and supply chains continue to struggle. Respondents are again overwhelmingly concerned about tariff-related activity, including how reciprocal tariffs will impact company revenue and current manufacturing locations," Fiore said. "Panelists are actively evaluating how to respond to these business changes, given the uncertainty."

Among the specific comments from committee members:

• "Busy for new orders, but the cost of raw material chemicals keeps going up." (Chemical Products)

• "We have seen a slight uptick in international business. Suppliers do not seem to know how to handle the recently imposed tariffs. Most are waiting to re-evaluate potential price increases until September." (Computer & Electronic Products)

• "Suppliers appear to be bracing us for cost increases, given increased talk of tariffs and inflation. We are budgeting for 2019 accordingly." (Food, Beverage & Tobacco Products)

• "The toughest thing we deal with is the unknown. Dealing with tariffs on steel purchases and not knowing if or when they will end makes planning difficult. We are entering the period when we begin our pricing negotiations for next year and will likely treat the tariffs as if they will be here for the entire year. It’s challenging, but not insurmountable." (Fabricated Metal Products)

• "Business is positive, new equipment sales and inquiries are strong, and the parts business is strong. Raw material costs, especially steel, appear to be leveling off. Cost of manufactured components has also leveled off. Most suppliers are willing and able to suppress cost increases. Tariff impacts are still a concern." (Machinery)

• "Business continues to be strong. We anticipate growth in the next few months." (Plastics & Rubber Products)

• "Business conditions are strong. Orders are up. Purchase prices are up. Unemployment is down." (Miscellaneous Manufacturing)

• "Continued strong demand has most locations in a sold-out market, putting pressure on our facilities to produce and have strong uptime. Purchasing is under pressure to provide critical parts in a market where lead times have increased." (Nonmetallic Mineral Products)

• "Steel tariffs and their threats are putting upward pressure on downstream materials." (Petroleum & Coal Products)

Bob Vavra, content manager, Plant Engineering, CFE Media,