There are still plenty of reasons to be concerned about policies in Washington D.C., but budget fears seem to be abating among manufacturers. In its monthly report on the domestic manufacturing industry, the Institute for Supply Management found in two major sectors – computer and electronic products and transportation equipment – government spending is loosening up.
Electronics-industry respondents to the ISM’s monthly survey of purchasing management reported a slight improvement in defense spending and manufacturing during the month of April. Transportation equipment vendors commented that the U.S. remains “stable” while Asia sales are increasing “dramatically.” Although the government remains deadlocked on a number of issues, domestic producers seem to be putting budget battles behind them, said Bradley J. Holcomb, chair of the ISM Manufacturing Business Survey Committee.
Overall, manufacturing seems to be moving on from a disruptive winter. The ISM’s leading index – the PMI – in April registered 54.9 percent, an increase of 1.2 percentage points from March's reading of 53.7 percent. The new orders index registered 55.1 percent, equal to the reading in March and the production index registered 55.7 percent, only slightly below the March reading of 55.9 percent. Employment grew for the 10th consecutive month, increasing 3.6 percentage points to 54.7 percent in April.
Comments from the ISM’s panel of purchasers were generally positive; however, some expressed concern about international economic and political issues potentially impacting demand.
Of the 18 manufacturing industries tracked by the ISM, 17 are reporting growth in April in the following order: apparel, leather and allied products; primary metals; furniture and related products; miscellaneous manufacturing; food, beverage and tobacco products; transportation equipment; fabricated metal products; machinery; printing and related support activities; plastics and rubber products; textile mills; chemical products; computer and electronic products; wood products; paper products; petroleum and coal products; and electrical equipment, appliances and components. The only industry reporting contraction in April is nonmetallic mineral products.
Another positive trend is in pricing, which has gone down, according to Holcomb. “Normally we see prices increase during the first quarter and that’s behind us. I’d expect to see that taper down to very moderate pricing activity.”
The ISM prices index registered 56.5 percent in April, which is a decrease of 2.5 percentage points compared to the March reading of 59 percent. In April, 25 percent of respondents reported paying higher prices, 12 percent reported paying lower prices, and 63 percent of supply executives reported paying the same prices as in March. A prices index above 49.7 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Index of Manufacturers Prices.
The overall manufacturing industry has a problem the electronics segment would like to have, however. (See: IP&E: Awaiting Stronger Distribution & End-Market Orders.) Customer inventories have been considered too low for two consecutive months. ISM’s customers' inventories index registered 42 percent in April, the same percentages as reported in March. The April and March readings of 42 percent are the lowest since May 2011 when the customers' inventories index registered 39.5 percent. Customers' inventories have registered at or below 50 percent for 61 consecutive months. A reading below 50 percent indicates customers' inventories are considered too low.
“It would seem customers have been a bit tentative waiting for spring to arrive and cherry blossoms to bloom,” Holcomb said. At the same time, “it’s an opportunity for them to provide new orders to manufacturers until their pipeline is filled. Coupled with anticipated growth in retail sales, I think [the inventory level] could be a driving force behind more good things to come.”