Obsolescence Insurance, a New High-Margin Business for EMS Companies
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Following two months of decelerating growth, the U.S. manufacturing industry began to rebound in May. The Institute for Supply Management’s leading index, the PMI, increased by 1.3 percent in May to reach 52.8 percent. Although any number over 50 indicates industry growth, the PMI stood at 51.5 in April, which was a decrease from the prior month.
Most of the supporting indices for the PMI were also up for the month, according to Bradley J. Holcomb, chair of the Institute for Supply Management Manufacturing Business Survey Committee. The new orders index registered 55.8 percent, an increase of 2.3 percentage points from the reading of 53.5 percent in April. The production index registered 54.5 percent, 1.5 percentage points below the April reading of 56 percent. The employment Index registered 51.7 percent, 3.4 percentage points above the April reading of 48.3 percent, reflecting growing employment levels from April. Inventories of raw materials registered 51.5 percent, an increase of 2 percentage points from the April reading of 49.5 percent; and the prices index registered 49.5 percent, 9 percentage points above the April reading of 40.5 percent.
Moreover, it looks like the industry is beginning to shake off the effects of weather-related supply chain disruptions and labor strife in leading West Coast seaports. “West Coast port issues have eased up and our incoming imports are flowing again,” one machinery executive told the ISM. The strong U.S. dollar, however, continues to hurt manufacturers overseas. “The exchange rate on the dollar is hurting our sales in Asia,” said a computer and electronics products executive. . “The conversion rate is lowering our profit in Europe where we sell in Euros.”
Comments from the ISM’s manufacturing panel carried a positive tone in terms of an improving economy, increasing demand, and improving flow of goods through the West Coast ports, said Holcomb. “Also noted; however, are continuing concerns over the price of the US dollar and challenges affecting markets related to oil and gas industries.” While lower oil and gas prices benefit the businesses that use these products, suppliers to the petroleum industry are less happy. Miscellaneous manufacturing is facing “continued challenges in markets related to oil and gas industries,” said one executive.
Of the 18 manufacturing industries tracked by the ISM, 14 are reporting growth in May in the following order: apparel, leather and allied products; furniture and related products; paper products; food, beverage and tobacco products; nonmetallic mineral products; plastics and rubber products; electrical equipment, appliances and components; primary metals; transportation equipment; printing and related support activities; fabricated metal products; machinery; miscellaneous manufacturing; and chemical products. The two industries reporting contraction in May are: textile mills; and computer and electronic products.
The full report is available at ISM.
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