The U.S. manufacturing industry in February expanded at its fastest pace since 2014, according to the Institute for Supply Management (ISM). The ISM’s leading businesses index, the PMI, increased 1.7 percent in February to 57.7 -- its sixth consecutive month of growth.
New orders played a significant role for the period, increasing by 4.7 percentage points to reach 65.1; and the production index registered 62.9 percent, 1.5 percentage points higher than the January reading of 61.4 percent. Any number over 50 indicates manufacturing expansion.
Seventeen of the 18 industries tracked by the ISM reported growth last month. However, the employment index registered 54.2 percent, a decrease of 1.9 percentage points from the January reading of 56.1 percent, according to Bradley J. Holcomb, chair of the ISM’s Manufacturing Business Survey Committee. Inventories of raw materials registered 51.5 percent, an increase of 3 percentage points from the January reading of 48.5 percent; and the prices index registered 68 percent in February, a decrease of 1 percentage point from the January reading of 69 percent.
Purchasing managers in the computer and electronic products segment of the industry said they were “very positive” about the outlook for Q1 2017. Production goals have been adjusted multiple times and increased each time due to demand, they added. Executives in the electrical equipment, appliances and components segment said there’s a “major focus on commodities and potential [for] further inflation.”
The ISM reported the following commodities went up in price: (number of months in parentheses)
Aluminum (4); butadiene (2); caustic soda; copper (4); copper based products; corn (2); corrugate (5); diesel; ethylene; hdpe resin; isopropyl alcohol; ldpe resin; oil; polypropylene; rubber – natural; rubber – synthetic; scrap metal*; stainless steel (11); steel (14); steel tubing; steel – carbon (3); steel – cold rolled (4); steel – galvanized; steel – hot rolled (3); styrene (2); and titanium dioxide (3).
Movement in raw materials and commodities prices and availability could spell trouble for the electronics industry down the line. Attendees of this week’s Electronics Representatives Association’s (ERA) executive conference reported leadtimes for certain components were stretching out and certain component groups were becoming scarce. The electronics supply chain has enjoyed a long span of available inventory so component makers, distributors and OEMs hold a minimal amount of ready-to-sell stock. Additionally, prices have been in a downward spiral for years. Component makers, representatives and distributors are reluctant to pass cost increases on to their customers.
The electronics supply chain so far has not had problems securing the raw materials it needs for the manufacture of components. However, environmental pressure has forced the industry away from certain materials, such as lead; and advocates for corporate social responsibility (CSR) have changed the dynamics of sourcing materials such as tantalum. A sudden uptick in component demand or a sudden glitch in sourcing materials could prompt shortages -- and price hikes-- across the electronics supply chain.
The full ISM February manufacturing report can be found at: https://www.instituteforsupplymanagement.org/index.cfm?SSO=1