ISM: Manufacturing Growth Eases in July

Written by Sandy Williams

The Institute for Supply Management’s Manufacturing ISM Report on Business expanded for the 111th month in July. The PMI registered a solid 58.1, although decreasing 2.1 points from the June reading of 60.1 percent. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

New orders slipped 3.3 percentage points in July to 60.2 percent, but remained above 50 percent for the 15th straight month. The production index decreased 3.8 points to 58.5. Backlogs continued to expand, but at a slower pace in July. 

“Production expansion continues. Labor constraints throughout the supply chain and transportation difficulties continue to limit full production potential,” said Timothy Fiore, chairman of the ISM Manufacturing Business Survey Committee.

Supplier deliveries have slowed every month for nearly two years and did so again in July. The index fell 6.1 points to 62.1. Raw material inventories improved last month, moving 2.5 points higher to 53.3 on the inventories index. Customer inventories were reported as too low at an index reading of 39.4.

The prices index registered 73.2 percent in July. “The price increases across all industry sectors continue,” said Fiore. “The Business Survey Committee noted price increases in metals (all steels, steel components, aluminum and copper), chemicals, corrugate, freight, electronic components, fuels and wood products. Shortages continue in aluminum, electronics components, steels, steel-based products, electrical components and freight.”

Exports were at their lowest level since October at 55.3 and imports fell 4.3 points to 54.7.

“Demand remains robust, but the nation’s employment resources and supply chains continue to struggle. Respondents are again overwhelmingly concerned about how tariff-related activity, including reciprocal tariffs, will continue to affect their business,” said Fiore.

Comments from survey respondents include:

• “Steel cost increases are causing a lot of negotiations. The increases are real and will affect costs beginning in the third quarter of 2018.” (Electrical Equipment, Appliances & Components)

• “We’re reviewing the business case for importing manufactured parts from China, as new tariffs will lead to increased costs that we will pass along to our domestic customers.” (Transportation Equipment)

• “The steel tariffs are a concern to us. We have already seen steel prices increase due to the threat of the tariffs and are seeing kickback from our customers due to the higher prices. We are concerned that the end customer will go offshore to purchase the finished product.” (Fabricated Metal Products)

• “Business is moving along at a brisk pace, outperforming the annual plan year-to-date (calendar year financials). However, internationally, nationally and locally, we are finding many manufacturers behind schedule due to capacity constraints. They are stating their order intake is heavy and/or they cannot find qualified employees to get all the work done.” (Machinery)

• “Our customer demand is high, but supply of aluminum is tight. Also, tariffs are negatively affecting our bottom line, as we are unable to pass increases to all of our customers. Plus, we are seeing increases in our construction costs because of the steel price increases. Labor market is extremely tight for professional personnel, plant technicians and support associates.” (Primary Metals)

 • “Global demand is still strong. Working on contingency plans for the Chinese tariffs. We will probably onshore most of that material. Labor availability is becoming an issue.” (Computer & Electronic Products)

• “As a result of new tariffs on materials to/from China, we are taking measures to move impacted materials ahead of effective dates, which in some cases is resulting in holding higher inventories.” (Chemical Products)

• “The so-called trade war is now taking its toll on business activity, resulting in substantial reductions to new export orders. China has all but stopped taking orders, causing inventories to build up in the U.S. Domestic business is steady. However, it is too small to carry the load that export markets have retreated from. As a result, we will be meeting as a corporation next week to recast our second-half sales and revenue projections.” (Wood Products)

Latest in Economy