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U.S. Manufacturing Sector Continues to Grow

Economic activity in the manufacturing sector expanded in September, and the overall economy grew for the 113th consecutive month,…

  • October 24, 2018

Economic activity in the manufacturing sector expanded in September, and the overall economy grew for the 113th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report on Business.

Timothy R. Fiore, Chair of the Institute for Supply Management (ISM) Manufacturing Business Survey Committee, said “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, and the Customers’ Inventories Index remaining low.”

Fiore continued, “The Backlog of Orders Index continued to expand, but at lower levels compared to the previous month. Consumption improved, with production and employment continuing to expand, at higher levels compared to August, despite shortages in labor and materials. Inputs — expressed as supplier deliveries (decreased), inventories and imports — improved compared to prior month’s activity.”

Continued supply chain inefficiencies led to an increased consumption of inventory and a slight expansion of imports, which adequately supported production output.  Lead-time extensions, steel and aluminum disruptions, supplier labor issues, and transportation difficulties continue to limit potential, but at more manageable levels.

Export orders expanded, but four major industries are no longer contributing. Price pressure continues, but the index softened for the fourth straight month and dropped below 70 for the first time since December 2017.

“Demand remains robust, but employment resources and supply chains continue to struggle, but to a lesser degree. Respondents are again overwhelmingly concerned about tariff-related activity, including how reciprocal tariffs will impact company revenue and current manufacturing locations,” says Fiore.

What participants are saying:

“The market is in a state of chaos with the latest round of tariffs. As an electronics original equipment manufacturer, 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.” (Computer & Electronic Products)

“Tariffs starting to take a bite out of profitability.” (Chemical Products)

“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.” (Furniture & Related Products)

“The economy’s strength is holding, [and] outlook for the industry is positive, although continuing margin compression in consumer packaged goods is restricting general growth momentum from the greater economy.” (Food, Beverage & Tobacco Products)

“Still extremely strong through November; starting to see a decline for steel prices for December.” (Fabricated Metal Products)

“General available capacity at suppliers continues to decrease, creating supply issues.” (Machinery)

“Tariffs are creating a drag on some of our export opportunities.” (Plastics & Rubber Products)

“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.” (Paper Products)

“Orders are coming in, but from a limited number of customers. The future looks very promising.” (Primary Metals)

“Suppliers are impacted by China tariffs, [which is] delaying or cancelling manufacturing transfer projects.” (Miscellaneous Manufacturing)

Overall, manufacturing expanded in September as the PMI registered 59.8 percent, a decrease of 1.5 percentage points from the August reading of 61.3 percent.

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