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Hurricane Harvey struck a significant blow to the Houston, Texas metro area, home to the sixth largest import terminal in the world; and all major shipping lanes in the Gulf Coast, according the Institute for Supply Management. The ISM polled its U.S.-manufacturer members shortly after Harvey struck. “Given the strong economic linkages between the gulf coast and the country as a whole, Harvey is a disaster that will impact the U.S. economy far beyond that of the Gulf Coast,” said Thomas W. Derry, chief executive officer of the ISM, in a release. “Our hearts are with the individuals and businesses that have been affected by Hurricane Harvey. The human and corporate impact are significant.”

Tom Derry, ISM
U.S. manufacturers will face ongoing challenges in pricing, supplier deliveries and certain commodities because of the storm, Derry added. “We are encouraged, however, by data indicating that the effect on production, new orders, and employment will be relatively minimal.”
The ISM survey found that two-thirds (67 percent) of responding supply managers believe input materials pricing will be at least somewhat negatively impacted over the next three months with greater than one-quarter (27 percent) expecting prices to be negatively or very negatively impacted. Relatedly, a majority (56 percent) of respondents believe supplier deliveries will be at least somewhat negatively impacted over the next three months with nearly one-fifth (19 percent) expecting deliveries to be negatively or very negatively impacted.
The ISM has been tracking electronics component shortages over the past six months; specifically, ISM members have noted scarcity in capacitors, integrated circuits and memory. Increased demand and constrained capacity are the main culprits, but Harvey could make matters worse. A significant portion of electronics are manufactured overseas, so delivery delays could further exacerbate shortages. Suppliers have tentatively tried to raise prices during the shortage, but higher raw materials costs could lock in component price hikes.
Manufacturers in multiple industries rely on the oil and chemical refineries clustered in the Houston area. Productivity losses already are staring to mount up, according to Tim Fiore, chair of the ISM’s manufacturing business committee. “Prior to a hurricane, ships stop heading for ports and refineries, especially if they are located offshore, begin to evacuate workers. Let’s say they stopped production four days before the hurricane. Startup mode for refineries takes three to five days. That’s already a week of lost production.” Both imports and exports will be impacted, he added.
Even though the clean-up and rebuilding of the Texas coast is only in its earliest stages, more than 95 percent of respondents were consistently able to assess the impact of Harvey on their businesses. This very low level of uncertainty is unusual, according to the ISM.
Most impacted
ISM measures five key business metrics in manufacturing: new orders, production, employment, supplier deliveries, and inventories of input materials. ISM survey respondents expect that prices and speed of delivery will be most strongly impacted by the hurricane. Overall, 67 percent of respondents expect at least some negative impact to prices over the next three months with 27 percent of respondents expecting negative to very negative impacts. Even six months out, a majority (56 percent) expect at least some negative impact on prices. The manufacturing sub-sectors are more concerned than their non-manufacturing counterparts about negative price impacts three and six months out.
The findings on supplier deliveries are similar, but less dramatic. Overall, 54 percent of respondents expect at least some negative impact to deliveries over the next three months with 19 percent expecting negative to very negative impacts. Six months out, a more than one-third (36 percent) expect at least some negative impact on prices. The manufacturing sub-sectors are notably more concerned than their non-manufacturing counterparts about slowed deliveries three and six months out.
Moderately impacted
Respondents expect that production/business activity, new orders, and inventory levels will be somewhat impacted by Harvey. For each of these metrics overall, three months out, a majority of respondents feel Harvey’s impact will be neither positive nor negative. In the near-term, about one in five are concerned about somewhat negative impacts on these metrics, but only roughly one in 10 foresee more negative impacts. Six months out, only a very small proportion of respondents are concerned about negative or very negative impacts.
Least impacted metrics
Employment is the key metric least likely to be negatively impacted by Harvey. More than 80 percent of respondents expect that employment will be neither positively, nor negatively impacted by Harvey. Interestingly, there are indications that employment in non-manufacturing sectors may be slightly more negatively impacted than manufacturing sub-sectors.
Commodities potentially in short supply
Predictably, respondents expect that fuel and petrochemical feed stocks and derivatives could be in short supply three months out.
The following key commodities were most often mentioned as those that could potentially be in short supply over the next three months: fuel; plastic resins; chemicals; electronic components; feedstocks, chemicals (raw); gasoline; polypropylene; resin based products; building materials; electrical components; LDPE; plasticizer; caustic soda; ethylene; HDPE; LLDPE; methyl methacrylate; petroleum based products; and isocyanate.
The ISM began collecting Harvey-related data on August 31 and concluded on September 6. “As we continue to see the implications of Hurricane Harvey and prepare for Hurricane Irma, I hope that we can continue to come together as a community to support those in need,” Derry concluded.