Supply Chain More Optimistic About Q2 Component Demand
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Following six consecutive months of contraction, the U.S. manufacturing industry increased in March by a healthy 2.3 percentage points on the nation’s leading index. The Institute for Supply Management’s (ISM) PMI reached 51.8 percent from the February reading of 49.5. Any number above 50 indicates growth. The PMI is riding high on an increase in new orders, up 6.8 percent from February to 58.3; and production, which reached 55.3 percent from 52.8. Although new orders had been growing since December of 2015, they remained relatively flat through February. “It’s been a long time in coming—I felt as though we were building up to this point in the past couple of months with positive comments from our survey respondents,” said Brad Holcomb, chair of the ISM Manufacturing Business Survey Committee. “This month it’s nice to see the PMI above 50 lead by new orders.” The magnitude of the new orders increase – 6.8 percentage points – hasn’t been seen in several years. “This reflects pent-up demand,” Holcomb said. “Production—which is also up—follows new orders.” U.S. exports increased by 5.5 percentage points in March, reaching 52.0 from 46.5. “That’s another strong indicator of pent-up demand,” Holcomb said. “It’s also an indication that international customers are getting over the high price of the dollar and shopping at the ‘U.S.A. store’ again.” One possible area of concern, at least to buyers, is March’s price index which increased 13 percentage points to 51.5 percent. This is the first time raw materials prices increased since October 2014, but indicates a correction rather than a price hike, said Holcomb. Prices had been decreasing steadily for 19 months. “If something cost a dollar 20 months ago the price declined to maybe 85 cents,” Holcomb explained. “The index means the price is going back up toward that $1 level. We may have seen the bottoming out of [raw materials] prices as they pertain to the impact of lower gas and oil prices.” In contrast to the overall U.S. jobs market, which reported growth in March, the manufacturing employment index registered 48.1 percent in March, a decrease of 0.4 percentage points from February. Employment has contracted for the fourth consecutive month with several market sectors reporting difficulties in filling positions with qualified candidates. Twelve out of the 18 industries the ISM tracks reported growth; 13 of 18 industries reported an increase in new orders in March. “Current trends remain steady,” said an executive from the computer and electronics products sector. “No issues with delivery or costs.” Business in telecom is booming, according to a manager in the chemical products sector: “Fiber plant is at capacity.” The printing and related support activities; furniture and related products; nonmetallic mineral products; miscellaneous manufacturing; machinery; plastics and rubber products; food, beverage and tobacco products; fabricated metal products; chemical products; paper products; primary metals; and computer and electronic products sectors all reported growth. The five industries reporting contraction in March are: apparel, leather & allied products; textile mills; electrical equipment, appliances and components; transportation equipment; and petroleum and coal products.
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