PMI slips in April over labor concerns

“Business is off the charts” but manufacturers struggle to keep pace.

By Bob Vavra May 2, 2018

Manufacturing in April pulled back slightly from its high levels over concerns with prices and labor availability. The monthly purchasing manufacturers’ index (PMI) from the Institute for Supply Management fell 2.0 percentage points in April to a still-robust 57.3%. It was the second straight month of decline after the PMI hit 60.8% in February, but the index remains more than 10% above the growth level of 50.0% and the manufacturing fundamentals are in solid areas.

Timothy Fiore, chairman of the ISM Manufacturing Business Service Committee, said demand is strong, and manufacturers are struggling to keep up with that demand. "Consumption, described as production and employment, continues to expand, but has been restrained by labor and skill shortages," said Fiore in a press release. "Inputs, expressed as supplier deliveries, inventories and imports, declined overall, due primarily to inventory reductions likely led by supplier performance restrictions. Lead time extensions, steel and aluminum disruptions, supplier labor issues, and transportation difficulties continue."

Price also continue to rise, Fiore noted. "In April, price increases occurred across 17 of 18 industry sectors. Demand remains robust, but the nation’s employment resources and supply chains continue to struggle."

Three key indexes declined in April to contribute to the overall drop in the PMI. The New Orders Index was at 61.2%, a drop of 0.7 percentage points, the Production Index fell 3.8 percentage points to 57.2% and the was off 3.1 percentage points to 57.3%.

The declines indicate manufacturing growth has slowed, but only from great to very good. Committee members remain optimistic about the manufacturing sector as a whole. The only cautionary comments surrounded proposed steel and aluminum tariffs and the availability of labor.

Among the committee comments:

  • We are seeing strong sales in the U.S., Europe and Asia.” (Chemical Products)
  • “Business is off the charts. This is causing many collateral issues: a tightening supply chain market and longer lead times. Subcontractors are trading capacity up, leading to a bidding war for the marginal capacity. Labor remains tight and getting tighter.” (Transportation Equipment)
  • “Shortages of trucks and drivers has impacted delivery times.” (Food, Beverage & Tobacco Products)
  • “The recent steel tariffs have made it difficult to source material, and we have had to eliminate two products due to availability and cost of raw material.” (Fabricated Metal Products)
  • “Demand is up for products. Commodity pricing for steel and other materials increased due to the proposed tariffs. We are seeing commodity futures coming down. A lot of suppliers are asking for increases, and the team is battling those requests.” (Machinery)
  • "[The] 232 and 301 tariffs are very concerning. Business planning is at a standstill until they are resolved. Significant amount of manpower [on planning and the like] being expended on these issues.” (Miscellaneous Manufacturing)
  • “Production orders at this time are still strong and being driven partially by construction factors and customers purchasing ahead to avoid potential price increases.” (Plastics & Rubber Products)
  • “The general outlook for 2018 remains positive and upbeat as we see continued signs of a growing economy and investment in housing and infrastructure.” (Nonmetallic Mineral Products)
  • “Business conditions have been good; order book is full and running around 98%  capacity.” (Primary Metals)
  • “Back orders remain strong. New order rate exceeds shipment rate.” (Computer & Electronic Products)

Bob Vavra, content manager, CFE Media, bvavra@cfemedia.com