Business of Engineering

PMI slips again as tariffs have an impact

Manufacturing index stays in growth range, but slides to a 17-month low of 52.1%.
By Bob Vavra June 3, 2019
Image courtesy: Bob Vavra, CFE Media

The monthly purchasing manufacturers’ index (PMI) fell again in May, slipping to a 17-month low as imports declined, delivers slowed and members of the Institute for Supply Management’s Manufacturing Business Survey Committee continued to be concerned about the continuing issues around global tariffs.

The PMI dropped 0.7 percentages points to 52.1%, the lowest level for the index since a 51.7% reading in October 2016. The PMI has fallen 16.6% since a 60.8 reading in August 2018. May marked the third straight month of decline.

“Comments from the panel reflect continued expanding business strength, but at soft levels consistent with the early-2016 expansion,” said Timothy R. Fiore, chairman of the Institute for Supply Management Manufacturing Business Survey Committee. “Inputs — expressed as supplier deliveries, inventories and imports — were lower this month, primarily due to inventory softening and supplier’s continuing to deliver faster, resulting in a combined 4.6 percentage point reduction in the Supplier Deliveries and Inventories indexes.”

Concerns over the unstable trade situation had an impact on the index as well. “Imports contracted for the second straight month,” Fiore said. “Overall, inputs reflect supply chains’ ability to respond faster and indicate that supply managers are closely watching inventories. Prices remain at a relatively stable level. Respondents expressed concern with the escalation in the U.S.-China trade standoff, but overall sentiment remained predominantly positive.”

Among the comments from panel members:

  • “Ongoing tariffs (issue is) impacting costs and influencing supplier realignment on country of origin. Border issue is causing delays in imports from Mexico.” (Computer & electronic products)
  • “The threat of additional tariffs has forced a change in our supply chain strategy; we are shifting business from China to Mexico, which will not increase the number of U.S. jobs.” (Chemical products)
  • “Sales continue to decline. Volumes are off, profits haven’t decreased in proportion to sales. Higher-margin vehicles continue strong sales, but low- to mid-range sales are down.” (Transportation equipment)
  • “Sales remain strong. Labor remains tight. Tariffs are having a significant impact on cost of goods. No impact on where we buy our goods.” (Food, beverage & tobacco products)
  • “Business is continuing to grow and expand. The pressure for driving out costs has increased significantly, and my company is facing major changes over the next several years to remain cost competitive.” (Miscellaneous manufacturing)
  • “The threat of a 15% increase on Section 301 tariffs is a concern. Although the potential has been around for months, the recent deadline was not expected. We had calculated and communicated the potential cost impact to our leadership.” (Petroleum & coal products)
  • “Weather in the middle of the country has slowed construction and infrastructure projects.” (Nonmetallic mineral products)
  • “Business continues to be very strong. Our company and our supply base continue to be challenged getting manpower for production. Key commodity costs like steel have continued to come down. Lead times with suppliers have stabilized after moving out two to three times what they were a year ago. Supply base performance has improved over the last 90 days and stabilized.” (Machinery)
  • “Newly increased tariffs on Chinese imports pose an issue on a number of chemicals and materials that are solely produced in China. We are expecting increases in raw materials starting June 1.” (Plastics & rubber products)
  • “General slowing due to inventory correction.” (Primary metals)

 


Bob Vavra
Author Bio: Bob is the Content Manager for Plant Engineering.