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IndustryNet Blog

U.S. manufacturing activity eases as prices rise

Posted by IndustryNet on Monday, April 2, 2018

100000214closeupmanufacturingjobshopworkerU.S. manufacturing activity expanded at a slower rate in March after soaring to a 13-year high in February, according to a new report issued this morning by the Institute for Supply Management (ISM).

According to the ISM’s survey of purchase executives, U.S. manufacturing activity edged down 1.5 percentage points to 59.3%, indicating that although activity in the nation’s industrial sector is still expanding, growth is happening at a slower rate.

Any reading over 50 indicates expansion, according to the ISM’s metrics.

March’s expansion represents the nation’s 19th straight month of growth in the manufacturing sector, and the overall economy has expanded for a 107th consecutive month.

Seventeen of eighteen industries surveyed by the ISM reported growth, led by fabricated metals; plastic & rubber products; computer and electronic products; paper products; and printing & related support activities.

Apparel, leather & allied products was the only sector to report contraction in March.

U.S. manufacturing still going strong in 2018, but prices, tariffs trouble

The ISM’s March survey points to continued strength in the nation’s industrial sector, with solid growth in production, new orders and labor. The final reading on the nation’s fourth quarter GDP was revised up to 2.9%, while the Labor Department reported the U.S. added 313,000 jobs in February.

31,000 of these new jobs were created in the manufacturing sector – double the number of factory jobs added to the economy in January.

All of this corresponds with IndustryNet’s March reports, including some strong employment growth numbers for Minnesota and Nevada, as well as in the metal coating and industrial heat treating industries.

The optimism expressed among manufacturers earlier in the year over tax reform and increased demand, however, has been somewhat overshadowed by concerns over the Trump administration’s recent import tariffs enacted on steel and aluminum.President Trump speaks to crowd with American flag in backgound

An analysis by MarketWatch points out that although manufacturing in the U.S. is still growing rapidly, the new tariffs have prompted concerns among some manufacturers. The ISM’s prices paid index rose to an 8-year high, with some executives pointing to panic buying of steel in response to the tariffs as a main factor.

The ISM’s Prices Paid Index surged to 78.1 in March, up 3.9% from February. 57.1% of executives said they paid higher prices in March, while 42% reported paying the same, according to the ISM. Only 0.8% reported paying lower prices.

Higher prices were paid for metals, including steel, aluminum and copper, as well as some plastics.

An executive in the machinery sector stated: “Much concern in the industry regarding the steel and aluminum tariffs recently [imposed]. This is causing panic buying, driving the near-term prices higher and [leading to ] inventory shortages for non-contract customers.”

Others pointed to “Significant price increases in the steel commodity due to [tarrifs],” and “New tariffs are causing concern across the supply chain. Full impact will take a few weeks to reveal itself.”

Today’s report that China is striking back against the recent legislation with tariffs on $3 billion worth of U.S. exports will likely raise greater concern among manufacturers in the weeks ahead.

New orders, production and employment expand at slower rate

An executive in the textiles sector commented: “Overall, incoming orders are picking up, and supplier pricing is increasing in some commodities.”

This is evident in the ISM’s New Orders Index, which stands at 61.9% in March -- well into expansion territory.

This is, however, 2.3 points lower than February, an indication that new orders are increasing at a slower rate. The ISM’s New Order Index has expanded for eleven straight months and in December of 2017 reached its highest level since 2004.

chicken processingAccording to the ISM, fifteen out of eighteen industries reported an increase in new orders, with wood products; non-metallic mineral products; computer & electronic products; paper products; and transportation equipment leading the way.

For a second straight month, the apparel, leather & allied products industry was the only to report a contraction in new orders.

Production also edged down, with March’s reading at 61%, down 1% from February. Although production is now in its 19th straight month of expansion, the ISM reports manufacturers are struggling to keep up with demand due to supply chain disruptions and a tightening labor market.

Fourteen of eighteen industries reported an uptick in March, and were strongest in printing/related support industries; plastics & rubber products; paper products; computer & electronic products; and fabricated metals.

Just two industries reported a decline in production: apparel, leather & allied products; and textile mills.

Employment also grew in March – but at a slower rate. The ISM’s employment index eased back 2.4% to a reading of 57.3. This is the 19th consecutive month of growth for U.S. industrial employment, according to the ISM, though manufacturers still report having trouble finding skilled workers.

Twelve of the eighteen industries surveyed by the ISM reported growth in employment, with paper products; furniture & related products; textile mills; miscellaneous manufacturing; and fabricated metals leading gains.

The food, beverage & tobacco products sector was the only to report an employment contraction in March, according to the ISM.

The Manufacturing ISM® Report On Business® is based on data compiled from purchasing and supply executives nationwide at the Institute for Supply Management (ISM).






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