PMI rises in May, but so do concerns over tariffs

Index hits 58.7% in May, but labor and global issues also gaining attention.

By Bob Vavra, CFE Media June 5, 2018
Manufacturing’s strengths outweighed its challenges again in May as the Institute for Supply Management’s purchasing manufacturers’ index (PMI) rose 1.4 percentage points to 58.7%. It was the 10th straight month that the index finished above 58% and started the 10th consecutive year of overall economic growth. Led by the continuing strength in new orders, production and the highest level or order backlogs in 14 years, the index finished above April 57.3% figure. 
“Demand remains strong, with the New Orders Index at 60 or above for the 13th straight month, and the Customers’ Inventories Index remaining at very low levels,” said Timothy R. Fiore, chairman of ISM’s Manufacturing Business Survey Committee. “The Backlog of Orders Index continued expanding, with its highest reading since April 2004, when it registered 66.5%. Consumption, described as production and employment, continues to expand in spite of labor and skill shortages. Inputs, expressed as supplier deliveries, inventories and imports, had expansion declines, due primarily to inventory reductions likely caused by supplier performance issues.”
The PMI figures were compiled before the May 31 White House announcement on new steel and aluminum tariffs to be levied against Canada, Mexico, and the European Union. Some of the previous tariffs already weighed on committee members’ minds, but Fiore said there were domestic pressures on manufacturers, as well. 
“Lead-time extensions, steel and aluminum disruptions, supplier labor issues, and transportation difficulties continue,” he said. “Export orders expanded at slower rates. Demand remains robust, but the nation’s employment resources and supply chains continue to struggle.”
Among the comments from committee members
  • “We are currently overselling our forecast and don’t see an end to the upswing in business. We are very concerned, however, about the tariffs proposed in Section 301 and are focusing on alternatives to Chinese sourcing.” (Transportation Equipment)
  • “Very difficult to hire skilled and unskilled labor.” (Food, Beverage & Tobacco Products)
  • “We are concerned about the strong dollar affecting our export orders as well as the steel tariffs, which are causing domestic steel prices to rise.” (Fabricated Metal Products)
  • “Strong demand from (agricultural) business; solid demand in all other business segments.” (Chemical Products)
  • “Sales remain strong. Lead times and direct material costs are soaring.” (Machinery)
  • “Suppliers are seeing price increases and trying to pass them on.” (Miscellaneous Manufacturing)
  • “Continued talk around steel tariffs has resulted in price increases for domestic line pipe, while HRC seems to be moving sideways. Temporary exemptions for allies and an agreement with South Korea have not calmed the market.” (Petroleum & Coal Products)
  • “Growth seems to be coming in the construction industry, but at a slower pace than expected with delays due to weather in the U.S. Business in (Latin America) is way up, and Canada is off to a decent start.” (Nonmetallic Mineral Products)
  • “Industry demand is causing price increases. Fuel prices are also on the rise, and there have been (price) increases associated with that.” (Primary Metals)
  • “Severe allocation, long lead times and upward price pressure, particularly in the electronic components market, continue to hamper our ability to meet customer demand and our shipping schedule.” (Computer & Electronic Products)
Bob Vavra, content manager, CFE Media,