Skip navigation
Welding Emir Krasnić/Pixabay

ISM: Trade remains an issue as supply chains slow down

"Demand expansion resumed, with the New Orders Index recording marginal growth, the Customers’ Inventories Index entering ‘about-right’ territory, and the Backlog of Orders Index contracting for the third straight month," ISM said.

Economic activity in the manufacturing sector expanded in July, and the overall economy grew for the 123rd consecutive month, the nation’s supply executives said in the latest ISM Manufacturing Report On Business.

“Comments from the panel reflect continued expanding business strength, but at soft levels,” said Timothy R Fiore, chair of the ISM Business Survey. “July was the fourth straight month of slowing PMI (Purchasing Managers’ Index) expansion. Demand expansion resumed, with the New Orders Index recording marginal growth, the Customers’ Inventories Index entering ‘about-right’ territory, and the Backlog of Orders Index contracting for the third straight month, at stronger levels compared to prior months. New export orders also contracted.

“Consumption (measured by the Production and Employment indexes) continued to expand, but at lower levels. This resulted in a combined decrease of 6.1 percentage points to the PMI calculation due to minimal new-order growth, backlog contraction and customer-inventory gains. Inputs—expressed as supplier deliveries, inventories and imports—were lower this month, due to inventory tightening for the second straight month and continued slower supplier deliveries, resulting in a combined 3.0-percentage point improvement in the Supplier Deliveries and Inventories indexes.”

The July PMI registered 51.2%, a decrease of 0.5 percentage point from the June reading of 51.7%.

Other highlights from the report:

  • The New Orders Index registered 50.8%, compared to the June reading of 50%.
  • The Production Index registered 50.8%, compared to the June reading of 54.1%.
  • The Employment Index registered 51.7%, compared to the June reading of 54.5%.
  • The Supplier Deliveries Index registered 53.3%, compared to the June reading of 50.7%.
  • The Inventories Index registered 49.5%, compared to the June reading of 49.1%.
  • The Prices Index registered 45.1%, compared to the June reading of 47.9%.

Also imports and new export orders contracted, ISM said. Overall, inputs indicate supply chains are responding marginally slower and supply managers are closely matching inventories to new orders. Prices contracted for the second consecutive month, indicating lower overall systemic demand.

Fabricated metal products, primary metals, transportation equipment, miscellaneous manufacturing and machinery were among nine industries reporting contraction in July.

“Respondents expressed less concern about US-China trade turbulence, but trade remains a significant issue,” Fiore said. “More respondents noted supply chain adjustments as a result of moving manufacturing from China.

“Overall, sentiment this month is evenly mixed.”

Here are some selected comments from respondents:

  • “General business trends are continuing to show signs of weakness resulting from tariffs and cost impacts of importing and exporting.” (Electrical Equipment, Appliances & Components)
  • “Business is strong mostly due to seasonality. Tariffs surcharges are now being passed through to all customers. Labor is tight, putting pressure on wages costs.” (Furniture & Related Products)
  • “All aspects of business remain strong, but we're starting to see the frictional effect of tariffs on exports. ” (Plastics & Rubber Products)
  • “We are a third-tier supplier to [a major aircraft manufacturer], and it appears its production slowdown of (an aircraft) is having a direct effect on our slowing orders.” (Miscellaneous Manufacturing)
  • “Business has slowed, but it is still steady and expected to pick up next month.” (Machinery)
  • “There is a drop in demand for steel products, which has had a major impact on steel prices and the domestic scrap market.” (Fabricated Metal Products)
  • “The economy is holding steady. All the uncertainty seems to be priced in accordingly, and supply plans are consistent throughout 2019. Business conditions improving yet still facing headwinds in foreign exchange, commodities and certain direct materials.” (Food, Beverage & Tobacco Products)
  • “(Automotive) sales continue to decline, and forecasts have been reduced due to softer predicted demand. Attention to product cost—not sales price—is increasing.” (Transportation Equipment)
  • “Weakness in end markets accelerating rapidly. Continuing to reduce production based on weakening demand and declining current orders.” (Chemical Products)
  • “China tariffs continue to be a concern. The uncertainty of future tariffs involving China, Canada and Mexico is also a concern. China tariffs for electronic parts are averaging 17%.” (Computer & Electronic Products)
TAGS: News
Hide comments

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Publish