U.S. electronics companies are feeling the pressure of widespread component shortages, according to the Institute for Supply Management’s latest report. Although the overall U.S. manufacturing index -- the PMI -- remains robust, supply constraints and extended lead times have caused some computer and electronic companies to delay or even miss sales opportunities.
“Supply constraints, extended lead times, capacity constraints [and the like], particularly in the electronics components markets, continue to frustrate and drain needed resources. They have delayed production schedules and, in some cases, caused missed or delayed sales opportunities,” one procurement executive told the ISM.
March’s PMI was 59.3, 1.5 percentage points down from the prior month. However, any number above 50 indicates the industry is expanding, and March’s PMI was the same as December 2017. “It’s still a really strong number,” said Tim Fiore, chair of the ISM’s manufacturing business survey committee. New orders declined 2.3 percentage points in March but still registered 61.9 percent, he added. Production declined by 1 percentage point to 61.0 in March.
The real story for March, Fiore said, is tariffs. Even through the Trump Administration did not formally announce its tariff intentions until late March, prices for raw materials increased 3.9 percent to reach 78.1 “There’s really no reason the price index went up except for the tariff issue,” Fiore said. One-third of respondents to the ISM’s monthly survey mentioned tariffs in their commentary.
Businesses have been stocking up on steel, Fiore said, and customers are being told that price quotes for steel are only good for 24 hours. Shortages are beginning to occur as speculators are buying up steel in anticipation of reselling it at a higher price. Electronics manufacturers have been dealing with components shortages for quite some time. Commodities in short supply during March included capacitors and resistors, the ISM reported.
“[There’s] much concern in the industry regarding steel and aluminum tariffs recently [imposed],” said a machinery executive. “This is causing panic buying, driving the near-term prices higher and [leading to] inventory shortages for non-contract customers.”
Manufacturers are also dealing with delivery delays and price increases related to transportation. U.S. seaports are becoming backed up as cargo has to be more closely inspected for steel and aluminum content.
Although the March employment index declined by 2.4 percentage points to 57.3, employment expansion remains strong, Fiore said. However, labor shortages are constraining production capacity and causing delivery delays. “With many companies struggling to hire skilled workers and indirect personnel to replace natural attrition, and to some extent, an increase in turnover,” said Fiore, “many respondents see the labor market as a constraint to production.”
Manufacturing remains underpinned by strong domestic demand, Fiore added, as well as a firming global economy and a weakening U.S. dollar. ISM’s customers’ inventories index registered 42 percent in March, which is 1.7 percentage points lower than the 43.7 percent reported for February, indicating that customers’ inventory levels were still considered too low.
“Customers’ inventory levels remain too low for the 18th consecutive month and are at their lowest level since July 2011, when the index registered 40.4. This month’s low level, coupled with continued strong expansion in backlogs, indicates strong demand will continue for the foreseeable future in spite of the slowing in new orders expansion,” Fiore concluded.