With 17 out of 18 U.S. manufacturing industries expanding in March, domestic producers closed the first quarter of 2017 on a high note. Although the Institute for Supply Management’s leading index, the PMI, cooled a bit from February – a decrease of 0.5 percent to 57.2 — the industry expanded in March for the seventh consecutive month, demonstrating the underlying strength of the U.S. economy.
Manufacturers also expanded their workforce in March-- the ISM's employment index registered 58.9 percent, an increase of 4.7 percentage points from the February reading of 54.2 percent. Executives from several industries indicated they were having trouble finding skilled workers.
Other indices adjusted slightly downward from February: new orders registered 64.5 percent, a decrease of 0.6 percentage point from the February reading of 65.1 percent; the production index registered 57.6 percent, 5.3 percentage points lower than the February reading of 62.9 percent; and inventories of raw materials registered 49 percent, a decrease of 2.5 percentage points from the February reading of 51.5 percent. Any number above 50 indicates growth.
“This is about as solid as it gets,” said Brad Holcomb, chair of the Institute for Supply Management Manufacturing Business Survey Committee. “All industries reported growth in new orders and the PMI is very strong even though it was down half a point. It is not sustainable for all indices to go up all the time and all the sub-indicators remain strong. We see new orders and backlog increasing, which bodes well for the future; and exports are up. Manufacturers have also been able to pass price increases along to customers which was difficult in the previous economy.”
While price hikes might not be popular with customers, Holcomb notes for manufacturers it has been long overdue. “The only possible downside [of price increases] is if inflation goes beyond where the Fed wants it, but we have no indication that we are at that point,” Holcomb said. “The last time that all 18 industries were stable or expanding and there were no commodities down in price was 2014.”
Holcomb added that foreign markets are also improving: both the EU and China reported their manufacturing economies were expanding. “Everything is subject to change, but U.S. businesses have been pumped up with expectations of lower taxes and less red tape although those things have to move from discussion to reality.” Electronics executives said in March the industry’s outlook “continues to be positive.”
The ISM's monthly trend supports data collected toward the end of 2016 in which small to midsize U.S. manufacturers displayed high optimism for the year ahead. Faith in the U.S. economy among midsized U.S. industrial manufacturers has “absolutely skyrocketed” compared with last year, as 74 percent of financial executives polled by the buying group Prime Advantage are more optimistic than they were at this time a year ago. This 48-point catapult over 2016 is by far the largest increase for this category since the survey began.
Manufacturers said they had high hopes that a change in U.S. government leadership would result in policies that favored U.S. businesses. With respect to the most realistic and actionable ways the new White House administration and Congress can help businesses, 94 percent of CFOs cited comprehensive tax reform as one of the top three tactics government could use. Healthcare reform nearly matched it, with 87 percent listing this action in their top three as well. Education and workforce training filled in the third spot at 50 percent.
In related news, the ISM announced after six years of service, Holcomb was retiring as Manufacturing Business Survey Committee Chair. Holcomb will pass the baton to Timothy Fiore, CPSM, C.P.M., who will assume responsibility of the Manufacturing ISM Report On Business effective June 1, 2017.
Holcomb is a recognized supply management leader known for global strategy and technology implementation in Fortune 500 companies including Dean Foods, Waste Management and Kodak. As spokesperson for the Manufacturing ISM Report On Business, he was frequently quoted in The Wall Street Journal, Financial Times, and USA Today and provided expert commentary for major financial and news outlets including Bloomberg News, CNBC, CNN Money, Public Broadcasting Service (PBS) Nightly Business Report, and National Public Radio (NPR). Bradley has also had the honor of being awarded the J. Shipman Gold Medal in 2015.
Fiore has held management roles for companies such as United Technologies Corporation, Terex Corporation, Celanese International, Ryder Systems and was most recently the SVP and CPO for ThyssenKrupp NA. Throughout his career, Fiore has led the development and deployment of national and global sourcing and supply chain solutions for manufacturing companies operating in multiple manufacturing sectors. He has served on the ISM Board of Directors as well as the boards of CAPS Research and other organizations and he was the 2016 J. Shipman Gold Medal Award winner. In his new role, Fiore will assume the role of chair for the monthly Manufacturing ISM Report On Business, writing the monthly report and speaking on behalf of the companies that make up the Manufacturing ISM Business Survey Committee.