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Tariffs, labor, prices: What U.S. manufacturers are saying about business conditions this month

Posted by IndustryNet on Thursday, December 13, 2018

100000311platinganodizingA number of new reports out this month point to a growing manufacturing sector, though optimism among supply executives has been tempered by looming tariff deadlines and a challenging labor market.

The Institute for Supply Management’s November Report on Business shows U.S. manufacturing activity surged over the month, and now stands at 59.3%, up 1.6% from October’s reading of 57.7%.

Purchase managers surveyed by the ISM reported increased orders, even as the impact of tariffs on supply chains loomed large and skilled employees hard to find. Notable increases were seen in the new orders and production levels, with those indices well in expansion territory.

The ISM’s Prices Paid Index sank 10% in November, after hitting record highs for several months. Although prices are still in expansion, with that index at 60.7, November’s reading is the lowest reported by the ISM since June of 2017.

“Comments from the panel reflect continued expanding business strength,” said ISM Chair Timothy Fiore. “Demand remains strong, with the New Orders index rebounding to above 60 percent.” Fiore went onto describe that production and employment expanded at a faster rate in November, and that prices had finally begun to soften after months of increases, especially in metals.

Labor & tariffs, a consistent theme among manufacturing executives

Comments from manufacturing executives in the ISM’s November report reveal that concerns over tariffs and a shortage of labor continue to stress supply chains and production at a time of heightened demand.

Tariffs are a major concern, though the recent 90-day truce struck between China and the U.S. last month should help assuage in the short term. The U.S. agreed to delay its proposed 25% tariffs on $250 billion worth of Chinese goods until March. The deadline had initially been set for January 1st.

Nonetheless, many manufacturers were already buying up needed supplies ahead of the 25% tariffs on Chinese imports in anticipation of a January 1st deadline. Recent data from the U.S. Census Bureau shows a widening trade gap, with a new report released December showing that October’s imports of goods hitting its highest level on record, at $217.8 billion.

This is reflected is some of the responses to the ISM survey, as with one executive in the nonmetallic mineral products category: “Continuing to increase imports in order to receive material in by the end of the year to avoid potential 25-percent tariffs.”

Other manufacturers are looking to relocate their operations from China back to the U.S., or, in the case of this executive in the miscellaneous manufacturing industry, to a cheaper location: “Business remains strong," they said. "Tariffs’ impact is fully reflected in Q3 results, and initiatives are underway to move work out of China into other low-cost countries.”

November’s Labor Report, released December 7th, shows a more modest increase of 155,000 jobs added to payrolls for that month, GRANDMAcompared to 237,000 for October. Manufacturing added 27,000 jobs in November, representing about 17% of all job gains for the month, with notable increases in chemicals (+6,000) and primary metals (+3,000).

Manufacturing employment has increased by 288,000 over the year, largely in durable goods industries.

Due to the tight labor market and the ever-growing need for skilled workers, industrial companies are having a hard time finding the workers they need to meet growing demand.

Says one executive in the fabricated metals sector: “A lack of experienced workers is having an impact on production, which impacts souring due to the skills gap in the manufacturing trades; particularly computer numeric controlled machinists, but also assembler and welders. The challenge is meeting customer-delivery requirements for new and repaired equipment.”

Another, in the food, beverage and tobacco industry stated: “Labor shortages in our area are affecting production volumes.”

The ISM report continues to highlight the strength of the U.S. manufacturing sector, with the nation’s factories continuing to expand despite the challenges of a tight labor market and uncertainty over tariffs.

For a complete rundown of the ISM report and the week’s industrial headlines, see our post U.S. manufacturing roars back in November

Solutions for domestic sourcing

Changing trade policies have a significant impact on American businesses, with many reexamining supply chains and searching for domestic suppliers. Industrial marketplaces like IndustryNet help industrial buyers connect with suppliers and also provide a direct path for U.S manufacturers to increase their visibility among domestic industrial procurers.

 

 

 

 

 

 

 

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