Strategy September 5, 2018
Near across-the-board strength in U.S. activity offsets concern over tariffs, supply chain slowdown.
A closely watched monthly index of U.S. manufacturing activity hit its highest level in more than 14 years last month, as producers reported strong results despite rapidly growing concerns about the impact of existing and threatened tariff hikes on global trade, the Institute for Supply Management (ISM) said yesterday.
The Purchasing Managers Index (PMI), which takes a broad look at domestic manufacturing, hit 61.3 percent in August, a 3.2-percentage point jump from the July reading of 58.1 percent, and the highest monthly reading since May 2004, ISM said. The “New Orders” index registered 65.1 percent, an increase of 4.9 percentage points from 60.2 percent in July. The “Production” index registered 63.3 percent, a 4.8-percentage point increase over the July reading of 58.5 percent.
The “Prices” index registered 72.1 percent in August, the 30thconsecutive month of higher raw materials prices and a sign of rising inflation at the supplier and manufacturer levels. Perhaps most significant from the standpoint of shipping providers, customer inventories remain too low, indicating that a surge in transport demand could result if businesses are caught short on holiday inventory.
For now, however, the manufacturing supply chain is struggling under the weight of increased inefficiencies, according to the ISM data. Supplier deliveries slowed month over month and supplier inventories rose, reflecting increased friction in getting raw and intermediate goods in a timely manner to manufacturers.
Comments from selected and anonymous survey respondents highlighted rising uncertainty over the impact of tariffs, especially retaliatory levies from America’s trading partners like China, Mexico, Canada, and the European Union. “Panelists are actively evaluating how to respond to these business changes, given the uncertainty,” said Timothy R. Fiore, who chairs ISM’s Manufacturing Business Survey Committee.
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