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IndustryNet Blog

U.S. manufacturing activity slows as prices jump and skills gap widens.

Posted by IndustryNet on Tuesday, May 1, 2018

100000228US_Manufacturing_ExpansionU.S. manufacturing activity expanded at a slower rate in April 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 another 2 percentage points in April, following a 1.5% decrease in March. The ISM manufacturing activity index now stands at 57.3%, compared to a 13-year high of 60.8% recorded in February.

Any reading over 50, however, indicates expansion, which means the U.S. manufacturing sector is still growing, but just at a slower rate. April’s reading of 57.3% represents the nation’s 20th straight month of growth in the manufacturing sector, and the 108th consecutive month of growth in the economy overall.

Seventeen of eighteen industries surveyed by the ISM reported growth, led by wood products; electrical equipment, appliances & components; fabricated metal products; transportation equipment; and furniture & related products.

There were no industries reporting a contraction for April.

U.S. manufacturing still going strong in 2018, but tariffs cause uncertainty

The ISM’s April survey indicates manufacturing in the U.S. is continuing to strengthen across the board. New orders, production, employment, and inventories are growing, though at a slower rate than reported in the previous survey.

Additional reports point to slower growth rates. The most recent U.S. GDP reading shows the U.S. economy grew at a 2.3% rate over the first quarter of 2018, easing back from a 2.9% rate of growth reported in the final quarter of 2017.

The Labor Department also reported a slowdown in hiring, with its latest employment survey recording a gain of 103,000 jobs in March, compared to 313,000 added in February.

22,000 of those jobs, however, were in manufacturing, bringing the grand total of industrial jobs added over the past twelve months to 232,000. Strong employment growth continues to be a theme in many of IndustryNet’s April reports. IndustryNet recently reported on manufacturing job growth in North Carolina as well as among the nation’s pallet manufacturers.

The Trump administration’s import tariffs continue to have an impact on the outlook amongst the nation’s manufacturers, with many of the ISM survey respondents crediting the tariffs for both growth and declines in business, depending on their industry. Some manufacturers, especially those in the primary metals sector, credit the tariffs for an uptick in business, as steel prices jump in response.

Manufacturers that rely on imported steel for fabrication, however, report having trouble sourcing raw material. One respondent in the fabricated metals sector stated: “The recent steel tariffs have made it difficult to source material, and we have to eliminate two products due to availability and cost of raw material.”

Others report uncertainty over the tariffs has clouded future plans for their businesses. One respondent noted “The 232 and 301 tariffs are very concerning. Business planning is at a standstill until they are resolved.”

Overall, though, many manufacturers report an uptick in business as the economy grows and more investments are made in infrastructure, housing and capital improvements.

“Business is off the charts,” says a respondent in the transportation equipment sector, while another in the computer & electronic products sector reports “Backorders remain strong. New order rate exceeds shipment rate.”

Skills gap hinders production; new orders grow3DPrintingBoston

The ISM’s New Orders Index registered 61.2% in April, a few notches down from March’s reading of 61.9%, but still well into expansion territory.

According to the ISM, sixteen out of eighteen industries reported an increase in new orders, with wood products; furniture & related products; plastics & rubber products; and nonmetallic mineral products leading the way.

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

Production also eased, with April’s reading at 57.2%, down 3.8% from March. Although production is now in its 20th straight month of expansion, the ISM reports manufacturers continue to keep up with demand as to supply chain disruptions and a tightening labor market impact production.

Fifteen of eighteen industries reported an uptick in production, led by furniture & related products; apparel, leather & allied products; electrical equipment; and appliances & components.

Paper products was the only industry to report a decline in production.

Employment also grew in March – but at a slower rate. The ISM’s employment index eased back another 3.1 percentage points to 54.2. Though employment in manufacturing is still growing, hiring has lagged due to a widening skills gap that continues to plague many sectors and impact production.

Twelve of the eighteen industries surveyed by the ISM reported growth in employment, led by paper products; miscellaneous manufacturing; fabricated metal products; machinery and nonmetallic mineral products.

Textile mills; printing & related support activities; and furniture & related products all reported contraction in employment, 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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