Overall manufacturing activity in the US is continuing to expand, but increasing prices for commodity goods could eventually hamper growth in some industry sectors.
While manufacturers are benefiting from strength in new orders and production, there is significant concern with regard to commodity prices, according to the Institute for Supply Management's most recent Manufacturing Business Survey. “Many manufacturers indicate the prices they have to pay for inputs are rising, and there is concern about the impact of higher prices on their margins,” says Norbert J. Ore, CPSM, CPM, chair of the Institute for Supply Management (ISM) Manufacturing Business Survey Committee.
The ISM's Manufacturing Report on Business for March 2011 indicated growth because the Purchasing Management Index (PMI) was above 60 percent for the third consecutive month. The component indexes of the PMI remain at very positive levels and signal strong sector performance in the first quarter. Of the 18 manufacturing industries tracked by ISM, all are growing, with the exception of Wood Products and Primary Metals. Computer & Electronic Products ranked fifth in terms of growth; Electrical Equipment, Appliances & Components ranked seventh.
Unfortunately, many of the commodities reporting increased prices are used in the electronics supply chain. These include aluminum; aluminum products; brass; copper; copper based products; electronic components; fuel oils; fuel surcharges; high density polyethylene; nickel; plastics; plastic products; plastic resins; polyethylene; polyethylene resin; polypropylene; resins; resin based products; rubber; rubber products; silver; stainless steel; steel; hot rolled steel; steel products; steel surcharges; and transportation rates.
Natural gas is the only commodity reported to be down in price. Commodities in short supply include electric components and titanium dioxide.
Some of the key highlights from the report:
ISM's Employment Index registered 63 percent in March, which is 1.5 percentage points lower than the 64.5 percent reported in February. This is the 18th consecutive month of growth in manufacturing employment. An Employment Index above 50.1 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.
Of the 18 manufacturing industries, 12 reported growth in employment in March in the following order: Apparel, Leather & Allied Products; Machinery; Transportation Equipment; Textile Mills; Computer & Electronic Products; Electrical Equipment, Appliances & Components; Paper Products; Plastics & Rubber Products; Nonmetallic Mineral Products; Food, Beverage & Tobacco Products; Printing & Related Support Activities; and Fabricated Metal Products.
The ISM Prices Index registered 85 percent in March, 3 percentage points higher than the 82 percent reported in February and the highest reading since July 2008 when the index registered 88.5 percent. This is the 21st consecutive month the Prices Index has registered above 50 percent. While 72 percent of respondents reported paying higher prices and 2 percent reported paying lower prices, 26 percent of supply executives reported paying the same prices as in February. A Prices Index above 49.4 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Index of Manufacturers Prices.
All 18 manufacturing industries report paying increased prices during the month of March in the following order: Textile Mills; Apparel, Leather & Allied Products; Wood Products; Furniture & Related Products; Electrical Equipment, Appliances & Components; Food, Beverage & Tobacco Products; Fabricated Metal Products; Machinery; Transportation Equipment; Primary Metals; Chemical Products; Paper Products; Miscellaneous Manufacturing; Nonmetallic Mineral Products; Printing & Related Support Activities; Computer & Electronic Products; Petroleum & Coal Products; and Plastics & Rubber Products.
Manufacturers' inventories declined in March for the second consecutive month. The Inventories Index registered 47.4 percent, 1.4 percentage points less than the 48.8 percent recorded for February. An Inventories Index greater than 42.7 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis' (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).
The seven industries reporting higher inventories in March — listed in order — are: Apparel, Leather & Allied Products; Fabricated Metal Products; Computer & Electronic Products; Electrical Equipment, Appliances & Components; Food, Beverage & Tobacco Products; Chemical Products; and Machinery. The eight industries reporting decreases in inventories in March — listed in order — are: Plastics & Rubber Products; Primary Metals; Petroleum & Coal Products; Nonmetallic Mineral Products; Miscellaneous Manufacturing; Printing & Related Support Activities; Paper Products; and Transportation Equipment.
The ISM and EBN will host a Webinar focusing on China, logistics, and the supply chain on April 21 at 12:00 p.m. EST. The Webinar will be moderated by the ISM's Norbert J. Ore, and panelists include:
- Ravi Kichloo, Senior Vice President, Global Semiconductor Business Development, Avnet
- Phillip Wu, Senior Marketing Director, UPS
- KK Poon, CPSM, CPM MCIPS, Subject Specialist of China Federation of Logistic and Purchasing; Member of Logistic Management Committee of HK Management Association; External examiner and course advisor of Institute of Vocational Education (IVE); and Subject Specialist of The HK Council for Accreditation of Academic & Vocational Qualification (HKCAAVQ).
You can register for this Webinar here.