Workforce Development

Pressures from tariffs, inventories drive down PMI

Index falls 2.1 points to 57.7% in October as production orders slow down.
By Bob Vavra November 1, 2018
Courtesy: Bob Vavra, CFE Media

The impact of global tariffs and concerns over inventories and an 18-month low in new orders has taken a bite out of manufacturing’s rally in 2018, as the monthly purchasing manufacturers’ index (PMI) fell 2.1 percentage points in October to 57.7%. That’s the lowest level for the index since April and 3.5 percentage points off the 61.8% high in August.

Tariffs weren’t the only issue impacting the index, according to Timothy R. Fiore, chairman of Institute for Supply Management’s Manufacturing Business Survey Committee. The new orders index registered 57.4%, a decrease of 4.4 percentage points from the September reading of 61.8%. The production index registered 59.9%, a 4.0 percentage point decrease compared to the September reading of 63.9%. The employment index registered 56.8%, a decrease of 2 percentage points from the September reading of 58.8%.

Fiore noted the overall strength of the manufacturing market—even at 57.7%, the index is more than 15% above the floor for growth in the sector and has grown for 26 straight months. But headwinds over the past few months did slow that growth in October.

“Lead-time extensions continue, while steel and aluminum prices are stabilizing,” Fiore said. “Supplier labor issues and transportation difficulties continue to disrupt production, but at more manageable levels. The expansion of new export orders softened, but five of six major industries contributed, up from two in September,” Fiore added. “Overall, the manufacturing community continues to expand, but at the lowest level since April 2018.”

Comments from committee members reflected the slowdown, and the impact of tariffs was cited as one of the concerns. Among the comments:

  • “All electronic components are having shortages and much longer lead times that impact our production.” (Computer & electronic products)
  • “Tariffs are causing inflation: increased costs of imports, increased cost of freight and increased domestic costs from suppliers who import.” (Chemical products)
  • “Protein prices continue under pressure from heavy U.S. supplies and export concerns related to trade tariffs. Higher costs related to trade tariffs are starting to be passed on to the cost of goods sold.” (Food, beverage & tobacco products)
  • “While order intake remains steady, the pace has slowed since the first half the year. Instead of growing, the backlog is declining. We were processing orders at a high level; now they are at the point of status quo from late 2017. We are not concerned yet, but there is certainly trepidation about the future.” (Machinery)
  • “NAFTA 2.0/USMCA does nothing to help our company, as it does not address Section 232 tariffs.” (Plastics & rubber products)
  • “We continue to run at full capacity. I continue to see pricing pressures and longer lead times in most commodities.” (Primary metals)
  • “Mounting pressure due to pending tariffs. Bracing for delays in material from China—a rush of orders trying to race tariff implementation is flooding shipping and customs.” (Miscellaneous manufacturing)
  • “Demand is high, and the supply chains are stressed.” (Transportation equipment)
  • “Orders and shipments are strong right now. Backlog for Q4 and next year are way down. Savvy customers are asking us to hold pricing on blanket orders, but material suppliers will only hold prices for a few days, which puts us in a bad spot. We’ll be spending as much as possible on capital improvements before the end of the year.” (Fabricated metal products)
  • “Steel tariffs continue to negatively affect our cost, even though we utilize U.S. sources for steel. Oil prices put meaningful upward pressure on cost. Continued tightness with truck drivers is expected.” (Petroleum & coal products)

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


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