The November 2018 Manufacturing ISM® Report On Business® is out, and with it come insights into one of the United States’ most talked about economic sectors. Recent ISM reports have been rocky and unpredictable, which makes the upswing portrayed in November’s report a welcome sight for many following the industry. Sentiments remain cautious, but optimistic.
A look at industry drivers
Many of the broader insights in November’s ISM® Report are ones we’ve heard all year long. Problems in the freight and logistics industries are generating headwinds on the fulfillment side for many manufacturers, while a lack of skilled laborers keeps production from reaching peak levels. Tariffs also remain a concern as third-quarter earnings reflect their ongoing impact.
What makes this report different from previous months is the positive outlook for demand and consumption. Many manufacturers are also enacting plans to mitigate tariff headaches, including moving production out of China and into cheaper countries. And, though materials costs are increasing downstream, many manufacturers have not yet had to pass them on to customers, which has kept demand consistent.
Breaking down the numbers
The November PMI® saw a 1.6% uptick to 59.3% from October’s 57.7%. However, this increase doesn’t paint a totally accurate picture of the report. For that, we’ll have to get deeper into the data.
- New orders are the biggest driver of note in this month’s ISM® Report. That number is up 4.7%, although it’s largely attributed to customers’ tendencies to front-load orders to stay ahead of new year demand and impending tariff increases.
- Prices took a dramatic tumble, dropping 10.9% — bringing them to the lowest point since June 2017 (53%), driven almost entirely by softening alloy prices. This has in turn driven sales in the immediate, but prices could swing upward again if tariffs increase.
- Between the uptick in new orders and the drop in prices, various other data points fell even on the scale in November’s report. Production is up slightly (0.7%), alongside employment (1.6%) and inventories (2.2%). Meanwhile, supplier deliveries are down (-1.3%) in tandem with customers’ inventories (-1.8%) and imports (-0.7%).
The overall economic nature continues to be one of growth, with numbers pointing toward a quickening of trends as we head into 2019.
What’s in store for the future?
U.S. industrial manufacturing will beat projections for the second year in a row, heading into 2019 with a running start. However, anxiety lies below the surface. Many manufacturing executives warn that a slowdown isn’t far off.
“Seeing a number [of] areas of slowdown that are concerning: truck market loosening [and] ISO depots full of empty containers, all signs of decreasing business activity.” (Chemical Products)
Shortages in talent, continued freight headwinds, and ongoing tariff policies are forcing evasive maneuvers that won’t hold up much longer. For example, if recruiting and training don’t improve, as many as 2.4 million unfilled manufacturing jobs by 2028 could put $2.5 trillion of U.S. GDP at risk. Industry-specific factors like these — coupled with general economic concerns such as rising inflation, higher borrowing costs, and the murkiness of NAFTA — will all bear down on manufacturing in 2019.
The November 2018 Manufacturing ISM® Report On Business® shows promising stability after months of uncertainty. And while many signs point to this stability as short-lived, it represents an important foothold for the industry as a whole to prepare for the headwinds of the coming year.