The Institute for Supply Management (ISM) Manufacturing Report on Business for April reported expansion, both for the manufacturing sector and the overall economy. This accounts for 108th consecutive month of growth.
Positive signs are numerous, including growth in new orders, production and employment; increased raw materials inventories; increasing prices; and higher backlogs. Timothy R. Fiore, CPSM, C.P.M., chair of the ISM Manufacturing Business Survey Committee pointed to the following:
- The April PMI registered 57.3%, a decrease of 2 percentage point from the March reading of 59.3%.
- The New Orders Index registered 61.2%, a decrease of 0.7 percentage point compared to the March reading of 61.9% (which marks an entire year of a score of 60 or above for the index.)
- The Production Index registered 57.2%, a 3.8 percentage point decrease compared to the March reading of 61%.
- The Employment Index registered 54.2%, a decrease of 3.1 percentage points from the March reading of 57.3%.
- The Supplier Deliveries Index registered 61.1 percent, a 0.5 percentage point increase from the March reading of 60.6%.
- The Inventories Index registered 52.9 percent, a decrease of 2.6 percentage points from the March reading of 55.5%.
- The Prices Index registered 79.3%in April, a 1.2 percentage point increase from the March reading of 78.1%, indicating higher raw materials prices for the 26th consecutive month.
- The Backlog of Orders Index continued expanding, with its highest reading since May 2004, when it registered 63%.
Positive growth brings with it certain types of challenges. “Consumption is where the biggest problems occurred,” Fiore told EBN. “The biggest issue appears to be that there is not enough qualified and skilled workers to make raw materials into goods. Manufacturers simply can’t find enough people, and that’s a problem that they can’t fix readily. The only path, really is to outsource and many cases that’s offshore and it doesn’t happen quickly.”
Survey respondants agreed. “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,” said one transportation equipment manufacturer.
The changing landscape on tariffs created further challenges, whichwill take several months to normalize, added Fiore. “In the last six weeks, prices of material gone up to near peaks but the indication is that it is flattening,” he said. Lead times for steel, which is greatly impacted by tariffs, are expanding to 14 weeks, for example. “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,”explained one manufacturer of fabricated metal products.
Specifically in the electronics industry, resisters and capactiors are also in short supply and will likely remain so, the report predicted.
— Hailey Lynne McKeefry, Editor in Chief, EBN