Usually when we write about a market report, we start with the most significant numbers on whether things are growing or shrinking, whether the market is up or down. But in the case of this month’s Institute of Supply Management (ISM) “Report On Business,” I think the views of the manufacturing supply managers surveyed are more revealing.
Here's what respondents are saying:
- “Rapidly rising raw material costs putting extreme pressure on profits.” (Food, Beverage & Tobacco Products) “Plastic resin product prices are climbing so fast that [suppliers] are attempting to increase prices on orders already accepted but not [yet] delivered.” (Chemical Products) “Customers are rebuilding safety stock levels of inventory, and also trying to buy ahead of material price increases.” (Plastics & Rubber Products) “Market continues to get stronger month over month. Recovery is faster than anticipated.” (Transportation Equipment) “Pressure from offshore suppliers continues to mount with exchange rate increases and seasonal demand for capacity.” (Miscellaneous Manufacturing)
Overall, the ISM report is positive: Manufacturing is up for the 23rd consecutive month, and new orders, production, employment, and inventories are all growing. The report was issued by Norbert J. Ore, CPSM, C.P.M., chair of the Institute for Supply Management Manufacturing Business Survey Committee, who said:
The recent trend of rapid growth in the manufacturing sector continued in April as the PMI registered above 60 percent for the fourth consecutive month. The New Orders and Production Indexes continue to drive the PMI, as they have both exceeded 60 percent for five consecutive months. Manufacturing employment appears to have developed significant momentum, as the Employment Index readings for the first four months of 2011 are the highest readings in the last 38 years. Inventory growth also took place in April after two months of destocking; however, the inventory restocking would appear to be necessitated by the strong performance in new orders.
While the manufacturing sector is definitely performing above most expectations so far in 2011, manufacturers are experiencing significant cost pressures from commodities and other inputs.
In fact, every single commodity covered by ISM showed an increase in prices — that's everything from corn and cocoa to energy and fuel oil. This situation, backed up by the comments from participants in the survey, has me a little worried.
Electronics manufacturing isn't as price-sensitive as some markets, such as food and consumer items, covered by the ISM. However, if production continues to increase and demand drops off because of high commodity prices, manufacturing will slow down.
The “I” word — inflation — has come up more than once in recent economic discussions, in spite of reassurances by the Fed. So, while the data looks good, what respondents are saying is a bit of a concern.
I'd like to know what you are hearing. Share your views on the message board, or write to us at .