U.S. Manufacturing Grows but Slower

U.S. manufacturing has been on a growth track, but that trend is slowing, according to supply chain executives polled in the latest Manufacturing ISM Report on Business.  The overall economy has grown for 122nd consecutive month, with economic activity in manufacturing expanding in June. However, growth has been modest, perhaps related to a variety of concerns.

“Respondents expressed concern about U.S.-China trade turbulence, potential Mexico trade actions and the global economy. Overall, sentiment this month is evenly mixed,” said Timothy R. Fiore,chair of the Institute for Supply Management (ISM) Manufacturing Business Survey Committee, adding that the June PMI reached 51.7%, a decrease of 0.4 percentage point from the May reading of 52.1 percent.  A PMI reading above 50% indicates that the manufacturing economy is generally expanding; below 50% indicates that it is generally declining.

“The PMI index remains above 50, which indicates continued growth in manufacturing, but at a slowing pace – in fact, the third straight month of slowing PMI expansion,” said Steven Rosen, co-CEO of private equity firm Resilience Capital Partners . “This is to be expected, given the headwinds facing the manufacturing sector, everything from tariffs and trade tensions to fluctuating currencies to flagging production in some regions.”

A softening of new orders has contributed to slowed growth, ending demand expansion. The New Orders Index registered 50%, a decrease of 2.7 percentage points from the May reading of 52.7%. “The Backlog of Orders Index contracting for the second straight month,” Fiore said. “New export orders remain weak.”  On the other side of the scale, the Production Index registered 54.1%, a 2.8-percentage point increase compared to the May reading of 51.3%. The Employment Index registered 54.5%, an increase of 0.8 percentage point from the May reading of 53.7%. Inventories were down 1.8 percentage points compared to last month, at 49.1%, while the Prices Index registered 47.9%, a 5.3-percentage point decrease from the May reading of 53.2%.

Fiore said:

Comments from the panel reflect continued expanding business strength, but at soft levels; June was the third straight month with slowing PMIexpansion. Consumption (measured by the Production and Employment indexes) continued to expand, resulting in a combined increase of 3.6 percentage points. Inputs — expressed as supplier deliveries, inventories and imports — were lower this month, due to inventory contraction and suppliers continuing to deliver faster, resulting in a combined 3.1-percentage point reduction in the Supplier Deliveries and Inventories indexes. Imports registered zero expansion. Overall, inputs indicate (1) supply chains are responding faster and (2) supply managers are again closely watching inventories. Prices contracted for the first time since February.

Ongoing business shifts are putting stress on the global electronics supply chain. “China tariffs and pending Mexico tariffs are wreaking havoc with supply chains and costs. The situation is crazy, driving a huge amount of work [and] costs, as well as potential supply disruptions,” commented on computer and electronics product manufacturer. Three quarters of those who mentioned tariffs did so with negative sentiment, compared to one quarter who made positive comments, Fiore said.

Further, particularly in the high-tech sector, continued long component lead times on resisters, capacitors and some types of semiconductors may have had a slowing effect on those manufacturers as well, Fiore said. Shifting policies around tariffed goods from China and Mexico has taken some goods off the table or the time being. “The President has found this economic weapon,” said Fiore. “Trade is 16% of the gross domestic product so if global is down, it will affect manufacturing.” 

How long tariff woes will persist remains to be seen. ““The resolution of the trade dispute with Mexico was a positive for manufacturing, since the proposed tariffs would have had a real impact both on the prices American consumers pay for goods and on American jobs, since so many manufacturing supply chains originate in Mexico,” said Rosen. “I’ve long been confident that the U.S. commitment to open trade will ensure a common-sense resolution to the tensions with China. I think that commitment will outweigh the very real – but ultimately transitory – political, economic and financial issues separating the two nations.” 

The Manufacturing Report on compiles responses from purchasing and supply executives nationwide, with individuals representing 18 of manufacturing sectors including computer and electronic products; electrical equipment, appliances and components; and transportation equipment. The PMI is a composite index based on five equally weighted areas: new orders (seasonally adjusted), production (seasonally adjusted), employment (seasonally adjusted), supplier deliveries (seasonally adjusted), and inventories.

3 comments on “U.S. Manufacturing Grows but Slower

  1. wagedayadvance
    July 5, 2019

    very informative . thank you!

  2. thuydt03
    July 8, 2019

    U.S. Manufacturing Grows but Slowe

  3. DavidHamilton
    July 15, 2019

    .I reckon that we have to be cautious these days. Looking at historical evidence, it's eminent that we are going to be hit by a downturn sometime soon. Considering all of the unrest and uncertainty in trade and exports these days, can you really be surprised?

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