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IndustryNet Blog

U.S. manufacturing activity cools in September

Posted by IndustryNet on Monday, October 1, 2018

100000277_metals_manufacturingU.S. manufacturing activity eased slightly in September after surging to a fourteen-year high in August, according the Institute for Supply Management’s latest survey of manufacturing executives.

U.S. manufacturing activity now stands at 59.8%, down 1.5% from August’s reading of 61.3%.

September’s ISM report generally reflects continued expansion in the nation’s industrial sector, with any reading over 50% indicating expansion.

Last month’s reading represents the 31st consecutive month of growth in the U.S. manufacturing sector, and the 113th straight month of growth in the economy overall.

Fifteen of eighteen industries surveyed by the ISM reported growth, led by textile mills; miscellaneous manufacturing; plastics & rubber products; computer & electronic products; beverage & tobacco products; machinery; and apparel, leather & allied products.

The primary metals sector was the only to report contraction.

U.S. manufacturing continues on winning streak

Despite last month’s marginal slowdown, the ISM’s index points to continued strength for the U.S. manufacturing sector. New orders, production; employment; supplier deliveries and exports continue to show historically strong numbers, even as prices rise and uncertainty breeds due to the ongoing trade showdown between the U.S. and its largest trading partners.

A robust reading on industrial output also contributed to September’s economic reports, with the Federal Reserve reporting a 0.4% increase in industrial output in August – its third consecutive month of growth.

In August, manufacturing output stood at a level 3.1% higher than the year before, with a number of major industry groups reporting strong production numbers, including motor vehicles and mining production.

Breaking down the numbers, a number of key metrics tracked by the ISM displayed sudden declines. The ISM’s New Orders Index declined 3.3% to 65.1%, after surging 4.9% in August, while the Supplier Deliveries Index declined 3.4% to 61.1 after rising 2.4% in August.steel plant.

The ISM’s Production Index held steady in September, up a half percent to 61.1%. The Employment Index, which has surged in recent months, edged up just a third of a percent, and now stands at 58.8%.

Raw materials prices continue to run high, with the ISMs Prices Paid Index at 72.1% in September, representing the 31st straight month of rising raw material costs.

A number of commodities rose in price according to the survey, including aluminum; aluminum-based products; electronic components; freight; hydrochloric acid; lumber; stainless steel; and steel-based products.

Related: How U.S. aluminum buyers are tackling tariffs

Brass, copper, and hot-rolled steel were all down in price, according to the ISM.

IHS Markit’s survey of manufacturing purchasing executives, also out this week, found an opposite trend to the ISM’s, with that index headed up in September to 55.6 from August’s reading of 54.7.

However, the general trend for both indices is optimistic, with growth steady across multiple metrics over the past year, including in new orders, exports, and production.

Tariffs, labor, and hopes for the future: What manufacturing executives are saying

Trade tensions between the U.S. and major trading partners such as China remains a common theme among manufacturing executives responding to the survey, though optimism remains high in for numerous industries.

Timothy Fiore, Chair of the ISM stated “Comments from the panel reflect continued expanding business strength. Demand remains strong, with the New Orders Index at 60 percent or above for the 17th straight month. Consumption improved, with production and employment continuing to expand at higher levels compared to August, despite shortages in labor and materials.”

Last month, the United State Trade Representative announced it was finalizing the rate of tariffs on $200 billion of Chinese goods, raising duties from 10% to 25%. The tariffs encompass roughly half of all imported products from China and are having a growing impact on domestic supply chains.

Many companies have applied for exemptions to the tariffs, while others have turned to industrial marketplaces like IndustryNet to locate domestic suppliers of materials and goods.

container-ship-429951_960_720One executive in the Computer & Electronics sector stated “The market is in a state of chaos with the latest round of tariffs. As an electronics original equipment manufacturer, our component prices have been impacted almost across the board. The tariffs have caused a mass rush to buy up inventories of affected products in order to minimize the long-term financial impact. This, in turn, is causing market constraints, which further drive up the cost and increase lead times.”

“Tariffs starting to take a bite out of profitability,” said one executive in the chemical products sector, while another in the plastics & rubber industry reported “Tariffs are creating a drag on some of our export opportunities.”

Another, in the furniture sector stated: “Business is strong and relatively stable. Tariffs are putting pressure on Chinese imports. Labor rates are increasing as it is very difficult to find help.”

Slowing manufacturing job growth

A tight labor market continues to plague many industries, with manufacturers struggling to find workers The Labor Department’s employment survey, released September 7th, shows U.S. employers added 201,000 new jobs in August, with the unemployment rate still at a historic low, holding steady at 3.9%.

After adding 254,000 jobs in the past year, however, hiring in the nation’s manufacturing sector cooled in August, with jobs down by 3,000. It remains to be see whether the dip in employment in the sector is part of a larger economic trend, or if companies are stepping up their recruiting efforts.

Says one executive in the paper products industry in response to the ISM survey: “Sourcing hourly workers for remote locations continues to be a challenge for both full-time and part-time opportunities. Have implemented a wide variety of recruiting techniques and suppliers to aid us in sourcing this hard-to-find talent.”

About the ISM

The Institute for Supply Management® (ISM®) is the first and largest not-for-profit professional supply management organization worldwide. Founded in 1915, ISM has over 50,000 members located in 100 countries.

About IndustryNetmetal fabrication_metal rolls

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