PMI slips, but overall manufacturing growth remains solid

Manufacturing index slides to 59.8% in September as impact of tariffs take center stage.

10/01/2018


Courtesy: Bob VavraManufacturing's long winning streak continued in September as the Institute for Supply Management's (ISM's) monthly purchasing manufacturers' index (PMI) continued to hover at the 20% growth rate.

Even as the PMI fell 1.5 percentage points in September to 59.8%, the index is significantly above the 50.0% break-even level for the index and remained at a growth rate of almost 20% (60.0% PMI) for the year."

Comments from the panel reflect continued expanding business strength," said Timothy R. Fiore, chairman of the ISM's Manufacturing Business Survey Committee. "Demand remains strong, with the New Orders Index at 60% or above for the 17th straight month, and the Customers' Inventories Index remaining low."

While a proposed agreement on a new version of the North America Free Trade Agreement (NAFTA) was announced Oct. 1, members of the committee remained concerned by trade issues, Fiore said. "Export orders expanded, but four major industries are no longer contributing. Price pressure continues, but the index softened for the fourth straight month and dropped below 70% for the first time since December 2017," Fiore said. "Demand remains robust, but employment resources and supply chains continue to struggle, but to a lesser degree. Respondents are again overwhelmingly concerned about tariff-related activity, including how reciprocal tariffs will impact company revenue and current manufacturing locations." Among the comments from committee members:

  • "The market is in a state of chaos with the latest round of tariffs. As an electronics original equipment manufacturer (OEM), our component prices have been impacted almost across the board. The tariffs have caused a mass rush to buy up inventories of affected products in order to minimize the long-term financial impact. This, in turn, is causing market constraints, which further drive up the cost and increase lead times." (Computer & electronic products)
  • "Tariffs starting to take a bite out of profitability." (Chemical Products)
  • "Business is strong and relatively stable. Tariffs are putting pressure on Chinese imports. Labor rates are increasing as it is very difficult to find help." (Furniture & related products)
  • "The economy's strength is holding [and] outlook for the industry is positive, although continuing margin compression in consumer packaged goods is restricting general growth momentum from the greater economy." (Food, beverage & tobacco products)
  • "Still extremely strong through November; starting to see a decline for steel prices for December." (Fabricated metal products)
  • "General available capacity at suppliers continues to decrease, creating supply issues." (Machinery)
  • "Tariffs are creating a drag on some of our export opportunities." (Plastics & rubber products)
  • "Sourcing hourly workers for remote locations continues to be a challenge for both full-time and part-time opportunities. Have implemented a wide variety of recruiting techniques and suppliers to aid us in sourcing this hard-to-find talent." (Paper products)
  • "Orders are coming in, but from a limited number of customers. The future looks very promising." (Primary metals)
  • "Suppliers are impacted by China tariffs, [which is] delaying or cancelling manufacturing transfer projects." (Miscellaneous manufacturing)

The economy remained on a 9-plus year winning streak, which is a PMI above 43.2%. The overall index remained above the 50% growth rate for the 33rd straight month.

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



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