The report was issued today by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management® (ISM) Manufacturing Business Survey Committee:

“The Manufacturing PMI® registered 46.8 percent in July, down 1.7 percentage points from the 48.5 percent recorded in June. The overall economy continued in expansion for the 51st month after one month of contraction in April 2020. (A Manufacturing PMI® above 42.5 percent, over a period of time, generally indicates an expansion of the overall economy.) The New Orders Index remained in contraction territory, registering 47.4 percent, 1.9 percentage points lower than the 49.3 percent recorded in June. The July reading of the Production Index (45.9 percent) is 2.6 percentage points lower than June’s figure of 48.5 percent. The Prices Index registered 52.9 percent, up 0.8 percentage point compared to the reading of 52.1 percent in June. The Backlog of Orders Index registered 41.7 percent, equaling its June reading. The Employment Index registered 43.4 percent, down 5.9 percentage points from June’s figure of 49.3 percent.

“The Supplier Deliveries Index indicated slowing deliveries, registering 52.6 percent, 2.8 percentage points higher than the 49.8 percent recorded in June. (Supplier Deliveries is the only ISM Report On Business index that is inversed; a reading of above 50 percent indicates slower deliveries, which is typical as the economy improves and customer demand increases.) The Inventories Index registered 44.5 percent, down 0.9 percentage point compared to June’s reading of 45.4 percent.

“The New Export Orders Index reading of 49 percent is 0.2 percentage point higher than the 48.8 percent registered in June. The Imports Index remained in contraction territory in July, registering 48.6 percent, 0.1 percentage point higher than the 48.5 percent reported in June.”

Fiore continues, “U.S. manufacturing activity entered deeper into contraction. Demand was weak again, output declined, and inputs stayed generally accommodative. Demand slowing was reflected by the (1) New Orders Index dropping further into contraction, (2) New Export Orders Index continuing in contraction, (3) Backlog of Orders Index remaining in strong contraction territory, and (4) Customers’ Inventories Index moving lower to the higher end of ‘too low’. Output (measured by the Production and Employment indexes) declined compared to June, with a combined 8.5-percentage point downward impact on the Manufacturing PMI calculation. Panelists’ companies reduced production levels month over month as head-count reductions continued in July. Inputs — defined as supplier deliveries, inventories, prices and imports — generally continued to accommodate future demand growth.

“Demand remains subdued, as companies show an unwillingness to invest in capital and inventory due to current federal monetary policy and other conditions. Production execution was down compared to June, likely adding to revenue declines, putting additional pressure on profitability. Suppliers continue to have capacity, with lead times improving and shortages not as severe. Eighty-six percent of manufacturing gross domestic product (GDP) contracted in July, up from 62 percent in June. More concerning: The share of sector GDP registering a composite PMI calculation at or below 45 percent (a good barometer of overall manufacturing weakness) was 53 percent in July, 39 percentage points higher than the 14 percent reported in June. Notably, all six of the largest manufacturing industries — Machinery; Transportation Equipment; Fabricated Metal Products; Food, Beverage & Tobacco Products; Chemical Products; and Computer & Electronic Products — contracted in July,” Fiore said.

The five manufacturing industries reporting growth in July are: Printing & Related Support Activities; Petroleum & Coal Products; Miscellaneous Manufacturing; Furniture & Related Products; and Nonmetallic Mineral Products. The 11 industries reporting contraction in July — in the following order — are: Primary Metals; Plastics & Rubber Products; Machinery; Electrical Equipment, Appliances & Components; Transportation Equipment; Fabricated Metal Products; Food, Beverage & Tobacco Products; Wood Products; Paper Products; Chemical Products; and Computer & Electronic Products.

What Respondents Are Saying

“Business is relatively flat — the same volume, but smaller orders.” [Chemical Products]

“Demand continued to soften into the second half of the year. Supply chain pipelines and inventories remain full, reducing the need for overtime. Geopolitical issues between China and Taiwan as well as the election in November remain weighing concerns.” [Transportation Equipment]

“Even though we are used to a seasonal reduction in business over the summer, consumer behavior is changing more than normal. Sales are lighter, and customer orders are coming in under forecasts. It seems consumers are starting to pull back on spending.” [Food, Beverage & Tobacco Products]

“Availability of parts is good, with small exceptions of missing materials here and there. Ordering is still well below typical levels as we continue to burn down inventory of raw goods, with ‘normal’ ordering trends expected to return sometime in the second half of 2024.” [Computer & Electronic Products]

“It seems that the economy is slowing down significantly. The number of sales calls received from new suppliers is increasing significantly. Our own order backlog is also diminishing. We are hoping for an increase in customer demand, or we will possibly need to make organizational changes.” [Machinery]

“Unfortunately, our business is experiencing the sharpest decline in order levels in a year. We were well below our budget target in June; as a result, it was the first month this year that we had negative net income.” [Fabricated Metal Products]

“Business is slowing, and we are taking cost actions.” [Electrical Equipment, Appliances & Components]

“Some markets that are usually unwavering are showing weakness. Weather is the common factor, but only so much.” [Nonmetallic Mineral Products]

“Our sales forecast for July and August are slow, but we’re making every attempt to remedy that situation. Our medical end-user customers continue to meet their forecasts, which is promising.” [Textile Mills]

“Elevated financing costs have dampened demand for residential investment. This has reduced our need for component products and inventory.” [Wood Products]

Manufacturing ISM Report On Business data is seasonally adjusted for the New Orders, Production, Employment and Inventories indexes.

*Number of months moving in current direction.

Commodities Reported Up/Down In Price And In Short Supply

Commodities Up in Price
Aluminum (8); Aluminum Products (2); Caustic Soda; Copper* (4); Corrugate; Corrugated Boxes; Electrical Components (3); High-Density Polyethylene (HDPE) Resin; Ocean Freight (3); Paper Products; Plastic Based Products; Plastic Resins (7); Polypropylene Resin; and Titanium Dioxide (2).

Commodities Down in Price
Copper*; Crude Oil; Natural Gas; Steel (3); Steel — Carbon (4); Steel — Hot Rolled (3); Steel — Scrap (3); Steel Products (2); and Sulfur.

Commodities in Short Supply
Electrical Components (46); Electrical Equipment; Electronic Components (4); Hydraulic Components; and Semiconductors.

Note: The number of consecutive months the commodity is listed is indicated after each item.
*Indicates both up and down in price.

July 2024 Manufacturing Index Summaries 

Manufacturing PMI®
The U.S. manufacturing sector contracted for the fourth consecutive month in July, as the Manufacturing PMI registered 46.8 percent, down 1.7 percentage points compared to June’s reading of 48.5 percent. “After breaking a 16-month streak of contraction by expanding in March, the manufacturing sector has contracted the last four months, and at a faster rate in July. Of the five subindexes that directly factor into the Manufacturing PMI®, only one (Supplier Deliveries) was in expansion territory, up from zero in June. The New Orders Index remained in contraction and moved downward in July. None of the six biggest manufacturing industries registered growth,” says Fiore. A reading above 50 percent indicates that the manufacturing sector is generally expanding; below 50 percent indicates that it is generally contracting.

A Manufacturing PMI above 42.5 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the July Manufacturing PMI indicates the overall economy grew for the 51st straight month after last contracting in April 2020. “The past relationship between the Manufacturing PMI and the overall economy indicates that the July reading (46.8 percent) corresponds to a change of plus-1.2 percent in real gross domestic product (GDP) on an annualized basis,” says Fiore.

The Last 12 Months

New Orders
ISM’s New Orders Index contracted in July for the fourth consecutive month, registering 47.4 percent, a decrease of 1.9 percentage points compared to June’s figure of 49.3 percent. The New Orders Index hasn’t indicated consistent growth since a 24-month streak of expansion ended in May 2022. “Of the six largest manufacturing sectors, two (Computer & Electronic Products; and Chemical Products) reported increased new orders. Panelists’ comments noted a continued level of uncertainty and concern about a lack of new order activity, with confidence in the future economic environment reaching its lowest level since the coronavirus pandemic recovery,” says Fiore. A New Orders Index above 52.3 percent, over time, is generally consistent with an increase in the Census Bureau’s series on manufacturing orders (in constant 2000 dollars).

The six manufacturing industries that reported growth in new orders in July, in order, are: Nonmetallic Mineral Products; Paper Products; Petroleum & Coal Products; Computer & Electronic Products; Furniture & Related Products; and Chemical Products. The eight industries reporting a decline in new orders in July — in the following order — are: Primary Metals; Transportation Equipment; Fabricated Metal Products; Food, Beverage & Tobacco Products; Machinery; Electrical Equipment, Appliances & Components; Plastics & Rubber Products; and Miscellaneous Manufacturing.

Production
The Production Index continued in contraction territory in July, registering 45.9 percent, 2.6 percentage points lower than the June reading of 48.5 percent. None of the six largest manufacturing sectors reported increased production. The index recorded its lowest performance since May 2020, when it registered 34.2 percent. “Panelists’ companies significantly reduced output levels compared to June. New order rates remain weak, and backlog levels continue to decline. Companies continue to avoid investing in inventory due to the current economic uncertainty,” says Fiore. An index above 52.2 percent, over time, is generally consistent with an increase in the Federal Reserve Board’s Industrial Production figures.

The four industries reporting growth in production during the month of July are: Printing & Related Support Activities; Furniture & Related Products; Paper Products; and Miscellaneous Manufacturing. The 10 industries reporting a decrease in production in July, in order, are: Petroleum & Coal Products; Machinery; Textile Mills; Primary Metals; Food, Beverage & Tobacco Products; Transportation Equipment; Electrical Equipment, Appliances & Components; Fabricated Metal Products; Plastics & Rubber Products; and Computer & Electronic Products.

Employment
ISM®’s Employment Index registered 43.4 percent in July, 5.9 percentage points lower than the June reading of 49.3 percent. The index recorded its lowest level since a reading of 42 percent in June 2020. “The index contracted for the second consecutive month after an expansion in May, which broke a seven-month streak of contraction. None of the six big manufacturing sectors expanded employment in July. Respondents’ companies are continuing to reduce head counts through layoffs, attrition and hiring freezes. Panelists’ comments in July indicated a notable increase in staff reductions compared to June, supported by the approximately 1-to-1.8 ratio of hiring versus head-count reduction comments,” says Fiore. An Employment Index above 50.3 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

Of 18 manufacturing industries, the two industries reporting employment growth in July are: Nonmetallic Mineral Products; and Miscellaneous Manufacturing. The 13 industries reporting a decrease in employment in July, in the following order, are: Textile Mills; Electrical Equipment, Appliances & Components; Paper Products; Petroleum & Coal Products; Plastics & Rubber Products; Wood Products; Primary Metals; Chemical Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Machinery; Fabricated Metal Products; and Transportation Equipment.

Supplier Deliveries†
Delivery performance of suppliers to manufacturing organizations was slower in July, with the Supplier Deliveries Index registering 52.6 percent, a 2.8-percentage point gain compared to the reading of 49.8 percent reported in June. This is the first month of slower deliveries after four consecutive months of faster deliveries. After a reading of 52.4 percent in September 2022, the index went into contraction territory the following month and remained there until February. Of the six big industries, three (Transportation Equipment; Chemical Products; and Computer & Electronic Products) reported slower supplier deliveries in July. “Supplier deliveries are slowing as panelists’ companies increasingly rely on their suppliers to manage their purchased material inventory, putting more strain on the supply chain,” says Fiore. A reading below 50 percent indicates faster deliveries, while a reading above 50 percent indicates slower deliveries.

The eight manufacturing industries reporting slower supplier deliveries in July — listed in order — are: Textile Mills; Petroleum & Coal Products; Wood Products; Transportation Equipment; Chemical Products; Electrical Equipment, Appliances & Components; Miscellaneous Manufacturing; and Computer & Electronic Products. The three industries reporting faster supplier deliveries in July are: Paper Products; Fabricated Metal Products; and Machinery. Seven industries reported no change in supplier deliveries in July as compared to June.

Inventories
The Inventories Index registered 44.5 percent in July, down 0.9 percentage point compared to the reading of 45.4 percent reported in June. “Manufacturing inventories contracted at a faster rate compared to the previous month. None of the six big industries reported increased manufacturing inventories in July. Continuing demand uncertainty is causing panelists’ companies to reduce investment in inventory and remain reliant on suppliers to carry ‘on-demand’ inventory,” says Fiore. An Inventories Index greater than 44.4 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).

Of 18 manufacturing industries, two reported higher inventories in July: Petroleum & Coal Products; and Electrical Equipment, Appliances & Components. The 11 industries reporting lower inventories in July — in the following order — are: Wood Products; Nonmetallic Mineral Products; Plastics & Rubber Products; Primary Metals; Paper Products; Furniture & Related Products; Computer & Electronic Products; Chemical Products; Transportation Equipment; Machinery; and Miscellaneous Manufacturing.

Customers’ Inventories†
ISM®’s Customers’ Inventories Index registered 45.8 percent in July, down 1.6 percentage points compared to the 47.4 percent reported in June. “Customers’ inventory levels decreased at a faster rate in July, with the index moving downward to the upper end of ‘too low’ territory. Panelists report their companies’ customers have decreased amounts of their products in inventory compared to the previous month, which is considered a positive for future new orders and production,” says Fiore.

The eight industries reporting customers’ inventories as too high in July, in order, are: Textile Mills; Furniture & Related Products; Wood Products; Plastics & Rubber Products; Fabricated Metal Products; Electrical Equipment, Appliances & Components; Miscellaneous Manufacturing; and Chemical Products. The six industries reporting customers’ inventories as too low in July, in order, are: Computer & Electronic Products; Paper Products; Primary Metals; Food, Beverage & Tobacco Products; Transportation Equipment; and Machinery.

Prices†
The ISM® Prices Index registered 52.9 percent, 0.8 percentage point higher compared to the June reading of 52.1 percent, indicating raw materials prices increased in July for the seventh month after eight consecutive months of decreases. Of the six largest manufacturing industries, three — Chemical Products; Computer & Electronic Products; and Food, Beverage & Tobacco Products — reported price increases in July. “The Prices Index indicated expansion in July, at a faster rate compared to the previous month. Commodity prices continue to be volatile, especially oil, natural gas, aluminum and plastic resins. Steel prices have reached long-term historical lows, supported by declining scrap prices. Twenty-three percent of companies reported higher prices in July, compared to 20 percent in June,” says Fiore. A Prices Index above 52.8 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Producer Price Index for Intermediate Materials.

In July, the 10 industries that reported paying increased prices for raw materials, in order, are: Textile Mills; Plastics & Rubber Products; Printing & Related Support Activities; Miscellaneous Manufacturing; Wood Products; Chemical Products; Furniture & Related Products; Computer & Electronic Products; Electrical Equipment, Appliances & Components; and Food, Beverage & Tobacco Products. The four industries reporting paying decreased prices for raw materials in July are: Fabricated Metal Products; Paper Products; Machinery; and Transportation Equipment.

Backlog of Orders†
ISM®’s Backlog of Orders Index registered 41.7 percent, the same reading as in June, indicating order backlogs contracted for the 22nd consecutive month after a 27-month period of expansion. For the second consecutive month, the index recorded its lowest reading since November 2023, when it registered 39.3 percent. None of the six largest manufacturing industries reported expanded order backlogs in July. “The index remained in contraction in July, as new order rates were insufficient to allow backlogs to grow. After 22 months of backlog contraction, it is believed that order books are now at historically low levels,” says Fiore.

Of the 18 manufacturing industries, the only one that reported growth in order backlogs in July is Petroleum & Coal Products. The 13 industries reporting lower backlogs in July — in the following order — are: Wood Products; Nonmetallic Mineral Products; Primary Metals; Plastics & Rubber Products; Food, Beverage & Tobacco Products; Textile Mills; Electrical Equipment, Appliances & Components; Machinery; Furniture & Related Products; Transportation Equipment; Fabricated Metal Products; Miscellaneous Manufacturing; and Chemical Products.

New Export Orders†
ISM®’s New Export Orders Index registered 49 percent in July, up 0.2 percentage point from June’s reading of 48.8 percent. “The New Export Orders Index reading indicates that export orders contracted for a second month after expanding in May and contracting in April, with two straight months of expansion before that. As was experienced in June, new export orders remain sluggish as international trading partners continue to struggle with weak economies,” says Fiore.

The four industries reporting growth in new export orders in July are: Paper Products; Primary Metals; Food, Beverage & Tobacco Products; and Miscellaneous Manufacturing. The six industries reporting a decrease in new export orders in July — in the following order — are: Computer & Electronic Products; Machinery; Electrical Equipment, Appliances & Components; Fabricated Metal Products; Transportation Equipment; and Chemical Products. Seven industries reported no change in new export orders in July as compared to June.

Imports†
ISM®’s Imports Index cooled again in July with a reading of 48.6 percent, an increase of 0.1 percentage point compared to June’s figure of 48.5 percent. “Imports contracted for the second month in a row after five consecutive months of expansion preceded by 14 consecutive months of contraction. Since the beginning of April, respondents’ companies have limited their investments in inventory, as growth prospects remain cloudy. Ocean freight costs continue to rise and access to equipment remains challenged as a result of extended transit times, reducing container and ship availability,” says Fiore.

The four industries reporting an increase in import volumes in July are: Petroleum & Coal Products; Primary Metals; Chemical Products; and Food, Beverage & Tobacco Products. The nine industries that reported lower volumes of imports in July, in order, are: Nonmetallic Mineral Products; Wood Products; Electrical Equipment, Appliances & Components; Miscellaneous Manufacturing; Plastics & Rubber Products; Transportation Equipment; Fabricated Metal Products; Machinery; and Computer & Electronic Products.

†The Supplier Deliveries, Customers’ Inventories, Prices, Backlog of Orders, New Export Orders, and Imports indexes do not meet the accepted criteria for seasonal adjustments.

Buying Policy
The average commitment lead time for Capital Expenditures in July was 177 days, a decrease of two days compared to June. Average lead time in July for Production Materials was 77 days, a decrease of three days compared to June. Average lead time for Maintenance, Repair and Operating (MRO) Supplies was 46 days, an increase of three days compared to June.

Posted: August 1, 2024

Source: Institute for Supply Management® (ISM®)

The report was issued today by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee:

“The Manufacturing PMI® registered 48.5 percent in June, down 0.2 percentage point from the 48.7 percent recorded in May. The overall economy continued in expansion for the 50th month after one month of contraction in April 2020. (A Manufacturing PMI® above 42.5 percent, over a period of time, generally indicates an expansion of the overall economy.) The New Orders Index remained in contraction territory, registering 49.3 percent, 3.9 percentage points higher than the 45.4 percent recorded in May. The June reading of the Production Index (48.5 percent) is 1.7 percentage points lower than May’s figure of 50.2 percent. The Prices Index registered 52.1 percent, down 4.9 percentage points compared to the reading of 57 percent in May. The Backlog of Orders Index registered 41.7 percent, down 0.7 percentage point compared to the 42.4 percent recorded in May. The Employment Index registered 49.3 percent, down 1.8 percentage points from May’s figure of 51.1 percent.

“The Supplier Deliveries Index remained in ‘faster’ territory, registering 49.8 percent, 0.9 percentage point higher than the 48.9 percent recorded in May. (Supplier Deliveries is the only ISM® Report On Business® index that is inversed; a reading of above 50 percent indicates slower deliveries, which is typical as the economy improves and customer demand increases.) The Inventories Index registered 45.4 percent, down 2.5 percentage points compared to May’s reading of 47.9 percent.

“The New Export Orders Index reading of 48.8 percent is 1.8 percentage points lower than the 50.6 percent registered in May. The Imports Index dropped into contraction territory, registering 48.5 percent, 2.6 percentage point lower than the 51.1 percent reported in May.”

Fiore continues, “U.S. manufacturing activity continued in contraction at the close of the second quarter. Demand was weak again, output declined, and inputs stayed accommodative. Demand slowing was reflected by the (1) New Orders Index improving to marginal contraction, (2) New Export Orders Index returning to contraction, (3) Backlog of Orders Index dropping into stronger contraction territory, and (4) Customers’ Inventories Index moving into the low side of the ‘just right’ range, neutral for future production. Output(measured by the Production and Employment indexes) declined compared to May, with a combined 3.5-percentage point downward impact on the Manufacturing PMI® calculation. Panelists’ companies reduced production levels month over month as head count reductions continued in June. Inputs — defined as supplier deliveries, inventories, prices and imports — continued to accommodate future demand growth. The Prices Index eased but remained in expansion (or ‘increasing’) territory; the index registered its second month of cooling increases.

“Demand remains subdued, as companies demonstrate an unwillingness to invest in capital and inventory due to current monetary policy and other conditions. Production execution was down compared to the previous month, likely causing revenue declines, putting pressure on profitability. Suppliers continue to have capacity, with lead times improving and shortages not as severe. Sixty-two percent of manufacturing gross domestic product (GDP) contracted in June, up from 55 percent in May. More concerning is the share of sector GDP registering a composite PMI® calculation at or below 45 percent — a good barometer of overall manufacturing weakness — was 14 percent in June, 10 percentage points higher than the 4 percent reported in May,” says Fiore.

The eight manufacturing industries reporting growth in June — in order — are: Printing & Related Support Activities; Petroleum & Coal Products; Primary Metals; Furniture & Related Products; Paper Products; Chemical Products; Miscellaneous Manufacturing; and Nonmetallic Mineral Products. The nine industries reporting contraction in June — in the following order — are: Textile Mills; Machinery; Fabricated Metal Products; Wood Products; Transportation Equipment; Plastics & Rubber Products; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; and Computer & Electronic Products.

WHAT RESPONDENTS ARE SAYING

“High volume of customer orders.” [Chemical Products]

“Customers continue to cut orders with short notice, causing a ripple effect throughout lower-tier suppliers.” [Transportation Equipment]

“Consumer demand and inventories are no longer stable at retail and food service establishments.” [Food, Beverage & Tobacco Products]

“While orders are still steady, inventory from the previous month is enough to satisfy current- and near-term commitments.” [Computer & Electronic Products]

“Customers ordering more to create buffer stocks (in case of) future shortages.” [Electrical Equipment, Appliances & Components]

“Order levels in two of our main divisions are indicating weak demand, and now we must work to reduce inventory levels.” [Fabricated Metal Products]

“Sales backlog is decreasing. We have furloughed a portion of our workforce as a result.” [Machinery]

“The level of production is lower due to decreased demand for products.” [Miscellaneous Manufacturing]

“Elevated financing costs have dampened demand for residential investment. We have reduced inventories of production components.” [Wood Products]

“Orders have increased slightly due to seasonal restocking.” [Plastics & Rubber Products]

Manufacturing ISM® Report On Business® data is seasonally adjusted for the New Orders, Production, Employment and Inventories indexes.
*Number of months moving in current direction.

COMMODITIES REPORTED UP/DOWN IN PRICE AND IN SHORT SUPPLY

Commodities Up in Price
Aluminum (7); Aluminum Products; Copper (3); Electrical Components (2); Labor — Temporary (2); Ocean Freight (2); Plastic Resins (6); Rubber Compounds; and Titanium Dioxide.

Commodities Down in Price
Polypropylene; Solvents; Steel (2); Steel — Carbon (3); Steel — Hot Rolled (2); Steel — Scrap (2); and Steel Products.

Commodities in Short Supply
Electrical Components (45); Electronic Components (3); and Steel — Carbon.

Note: The number of consecutive months the commodity is listed is indicated after each item.

JUNE 2024 MANUFACTURING INDEX SUMMARIES

Manufacturing PMI®
The U.S. manufacturing sector contracted for the third consecutive month in June, as the Manufacturing PMI® registered 48.5 percent, down 0.2 percentage point compared to May’s reading of 48.7 percent. “After breaking a 16-month streak of contraction by expanding in March, the manufacturing sector has contracted the last three months, and at a faster rate in June. None of five subindexes that directly factor into the Manufacturing PMI® were in expansion territory, down from two in May. The New Orders Index remained in contraction but moved upward in June. Of the six biggest manufacturing industries, only one (Chemical Products) registered growth in June,” says Fiore. A reading above 50 percent indicates that the manufacturing sector is generally expanding; below 50 percent indicates that it is generally contracting.

A Manufacturing PMI® above 42.5 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the June Manufacturing PMI® indicates the overall economy grew for the 50th straight month after one month of contraction (April 2020). “The past relationship between the Manufacturing PMI® and the overall economy indicates that the June reading (48.5 percent) corresponds to a change of plus-1.7 percent in real gross domestic product (GDP) on an annualized basis,” says Fiore.

THE LAST 12 MONTHS

New Orders
ISM®’s New Orders Index contracted in June for the third month, registering 49.3 percent, an increase of 3.9 percentage points compared to May’s figure of 45.4 percent. The New Orders Index hasn’t indicated consistent growth since a 24-month streak of expansion ended in May 2022. “Of the six largest manufacturing sectors, two (Computer & Electronic Products; and Chemical Products) reported increased new orders. Panelists’ comments noted a continued level of uncertainty and cautiousness as new order levels and customer inventory accounts continue to underperform,” says Fiore. A New Orders Index above 52.3 percent, over time, is generally consistent with an increase in the Census Bureau’s series on manufacturing orders (in constant 2000 dollars).

The six manufacturing industries that reported growth in new orders in June, in order, are: Primary Metals; Petroleum & Coal Products; Furniture & Related Products; Computer & Electronic Products; Chemical Products; and Miscellaneous Manufacturing. The six industries reporting a decline in new orders in June — in the following order — are: Fabricated Metal Products; Textile Mills; Machinery; Transportation Equipment; Electrical Equipment, Appliances & Components; and Food, Beverage & Tobacco Products. Six industries reported no change in new orders in June as compared to May.

Production
The Production Index fell into contraction territory in June, registering 48.5 percent, 1.7 percentage points lower than the May reading of 50.2 percent. Of the six largest manufacturing sectors, only one (Chemical Products) reported increased production. “Panelists’ companies marginally reduced output levels compared to May. New order rates remain weak and backlog levels continue to decline, as production output enters contraction territory and companies are hesitant to invest in intermediate goods and finished goods inventory due to economic uncertainty,” says Fiore. An index above 52.2 percent, over time, is generally consistent with an increase in the Federal Reserve Board’s Industrial Production figures.

The eight industries reporting growth in production during the month of June, in order, are: Printing & Related Support Activities; Petroleum & Coal Products; Paper Products; Primary Metals; Furniture & Related Products; Plastics & Rubber Products; Chemical Products; and Miscellaneous Manufacturing. The six industries reporting a decrease in production in June, in order, are: Textile Mills; Fabricated Metal Products; Machinery; Transportation Equipment; Electrical Equipment, Appliances & Components; and Food, Beverage & Tobacco Products.

Employment
ISM®’s Employment Index registered 49.3 percent in June, 1.8 percentage points lower than the May reading of 51.1 percent. “The index indicated employment contracted after an expansion in May which broke a seven-month streak of contraction. Of the six big manufacturing sectors, only one (Fabricated Metal Products) expanded employment in June. Many Business Survey Committee respondents’ companies are continuing to reduce head counts through layoffs, attrition and hiring freezes. Panelists’ comments in June indicated a marginal decline in staff reductions compared to May, supported by the approximately 1.3-to-1 ratio of hiring versus head-count reduction comments,” says Fiore. An Employment Index above 50.3 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

Of 18 manufacturing industries, the five industries reporting employment growth in June are: Printing & Related Support Activities; Nonmetallic Mineral Products; Wood Products; Fabricated Metal Products; and Miscellaneous Manufacturing. The six industries reporting a decrease in employment in June, in the following order, are: Textile Mills; Chemical Products; Primary Metals; Plastics & Rubber Products; Electrical Equipment, Appliances & Components; and Machinery. Seven industries reported no change in employment in June as compared to May.

Supplier Deliveries†
Delivery performance of suppliers to manufacturing organizations was faster in June, with the Supplier Deliveries Index registering 49.8 percent, a 0.9-percentage point gain compared to the reading of 48.9 percent reported in May. This is the fourth consecutive month of faster deliveries after one month of slower performance preceded by 16 straight months in “faster” territory. After a reading of 52.4 percent in September 2022, the index went into contraction territory in October and remained there until February. Of the six big industries, two (Chemical Products; and Machinery) reported slower supplier deliveries in June. “On a consistent basis in 2024, suppliers have supported customers adequately by delivering faster, making more reliable promises and slowly reducing lead times. Panelists continue to predict faster supplier deliveries for the rest of the year,” says Fiore. A reading below 50 percent indicates faster deliveries, while a reading above 50 percent indicates slower deliveries.

The four manufacturing industries reporting slower supplier deliveries in June are: Petroleum & Coal Products; Miscellaneous Manufacturing; Chemical Products; and Machinery. The eight industries reporting faster supplier deliveries in June — in the following order — are: Wood Products; Paper Products; Electrical Equipment, Appliances & Components; Fabricated Metal Products; Primary Metals; Plastics & Rubber Products; Computer & Electronic Products; and Transportation Equipment. Six industries reported no change in supplier deliveries in June as compared to May.

Inventories
The Inventories Index registered 45.4 percent in June, down 2.5 percentage points compared to the reading of 47.9 percent reported in May. “Manufacturing inventories contracted at a faster rate compared to the previous month. None of the six big industries reported increased manufacturing inventories in June. Demand uncertainty is causing panelists’ companies to reduce investment in inventory and remain reliant on suppliers to carry ‘on-demand’ inventory,” says Fiore. An Inventories Index greater than 44.4 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).

Of 18 manufacturing industries, four reported higher inventories in June: Petroleum & Coal Products; Textile Mills; Electrical Equipment, Appliances & Components; and Primary Metals. The 10 industries reporting lower inventories in June — in the following order — are: Wood Products; Plastics & Rubber Products; Machinery; Miscellaneous Manufacturing; Nonmetallic Mineral Products; Furniture & Related Products; Computer & Electronic Products; Transportation Equipment; Food, Beverage & Tobacco Products; and Chemical Products.

Customers’ Inventories†
ISM®’s Customers’ Inventories Index registered 47.4 percent in June, down 0.9 percentage point compared to the 48.3 percent reported in May. “Customers’ inventory levels decreased at a faster rate in June, with the index moving downward in ‘about right’ territory. Panelists report their companies’ customers have decreased amounts of their products in inventory compared to the previous month, which is considered neutral for future new orders and production,” says Fiore.

The seven industries reporting customers’ inventories as too high in June, in order, are: Apparel, Leather & Allied Products; Textile Mills; Plastics & Rubber Products; Wood Products; Fabricated Metal Products; Transportation Equipment; and Computer & Electronic Products. The seven industries reporting customers’ inventories as too low in June, in order, are: Nonmetallic Mineral Products; Paper Products; Furniture & Related Products; Food, Beverage & Tobacco Products; Chemical Products; Primary Metals; and Machinery.

Prices†
The ISM® Prices Index registered 52.1 percent, 4.9 percentage points lower compared to the May reading of 57 percent, indicating raw materials prices increased in June for the sixth month after eight consecutive months of decreases. Of the six largest manufacturing industries, three — Computer & Electronic Products; Food, Beverage & Tobacco Products; and Chemical Products — reported price increases in June. “The Prices Index indicated expansion in June, but at slower rate compared to the previous month. Commodity prices continue to be volatile, especially fuel, natural gas, aluminum and plastics. Steel prices are approaching long-term historical lows. Twenty percent of companies reported higher prices in June, compared to 26 percent in May, a clear improvement,” says Fiore. A Prices Index above 52.8 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Producer Price Index for Intermediate Materials.

In June, the eight industries that reported paying increased prices for raw materials, in order, are: Wood Products; Electrical Equipment, Appliances & Components; Textile Mills; Paper Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Miscellaneous Manufacturing; and Chemical Products. The three industries reporting paying decreased prices for raw materials in June are: Petroleum & Coal Products; Fabricated Metal Products; and Transportation Equipment. Seven industries reported no change in prices in June as compared to May.

Backlog of Orders†
ISM®’s Backlog of Orders Index registered 41.7 percent, down 0.7 percentage point from the 42.4 percent reported in May, indicating order backlogs contracted for the 21st consecutive month after a 27-month period of expansion. The index recorded its lowest rate since November 2023, when it registered 39.3 percent. None of the six largest manufacturing industries reported expanded order backlogs in June. “The index remained in contraction in June, as new order rates were insufficient to allow backlogs to grow,” says Fiore.

Of the 18 manufacturing industries, the only one that reported growth in order backlogs in June is Primary Metals. The 14 industries reporting lower backlogs in June — in the following order — are: Electrical Equipment, Appliances & Components; Wood Products; Machinery; Nonmetallic Mineral Products; Textile Mills; Petroleum & Coal Products; Fabricated Metal Products; Paper Products; Food, Beverage & Tobacco Products; Computer & Electronic Products; Plastics & Rubber Products; Transportation Equipment; Chemical Products; and Miscellaneous Manufacturing.

New Export Orders†
ISM®’s New Export Orders Index registered 48.8 percent in June, down 1.8 percentage points from May’s reading of 50.6 percent. “The New Export Orders Index reading indicates that export orders contracted in June after expanding in May and contracting in April, with two straight months of expansion before that. New export levels remain sluggish as international trading partners continue to struggle with slow moving economies,” says Fiore.

The four industries reporting growth in new export orders in June are: Nonmetallic Mineral Products; Paper Products; Chemical Products; and Miscellaneous Manufacturing. The eight industries reporting a decrease in new export orders in June — in the following order — are: Fabricated Metal Products; Transportation Equipment; Primary Metals; Plastics & Rubber Products; Machinery; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; and Computer & Electronic Products.

Imports†
ISM®’s Imports Index cooled in June with a reading of 48.5 percent, a decrease of 2.6 percentage points compared to May’s figure of 51.1 percent. “Imports contracted after five consecutive months of expansion preceded by 14 consecutive months of contraction. Respondents’ companies continue to limit investment in inventory, as future growth prospects remain cloudy. Ocean freight costs continue to rise and access to equipment remains restricted as a result of extended transit times, reducing available container and ship availability,” says Fiore.

The five industries reporting an increase in import volumes in June are: Primary Metals; Plastics & Rubber Products; Food, Beverage & Tobacco Products; Miscellaneous Manufacturing; and Chemical Products. The six industries that reported lower volumes of imports in June, in order, are: Wood Products; Nonmetallic Mineral Products; Transportation Equipment; Machinery; Computer & Electronic Products; and Fabricated Metal Products. Seven industries reported no change in imports in June as compared to May.

†The Supplier Deliveries, Customers’ Inventories, Prices, Backlog of Orders, New Export Orders, and Imports indexes do not meet the accepted criteria for seasonal adjustments.

Buying Policy
The average commitment lead time for Capital Expenditures in June was 179 days, an increase of seven days compared to May. Average lead time in June for Production Materials was 80 days, the same as in May. Average lead time for Maintenance, Repair and Operating (MRO) Supplies was 43 days, a decrease of one day compared to May.

Posted: July 1, 2024

Source: Institute for Supply Management

The report was issued today by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management® (ISM) Manufacturing Business Survey Committee:

“The Manufacturing PMI® registered 48.7 percent in May, down 0.5 percentage point from the 49.2 percent recorded in April. The overall economy continued in expansion for the 49th month after one month of contraction in April 2020. (A Manufacturing PMI above 42.5 percent, over a period of time, generally indicates an expansion of the overall economy.) The New Orders Index remained in contraction territory, registering 45.4 percent, 3.7 percentage points lower than the 49.1 percent recorded in April. The May reading of the Production Index (50.2 percent) is 1.1 percentage points lower than April’s figure of 51.3 percent. The Prices Index registered 57 percent, down 3.9 percentage points compared to the reading of 60.9 percent in April. The Backlog of Orders Index registered 42.4 percent, down 3 percentage points compared to the 45.4 percent recorded in April. The Employment Index registered 51.1 percent, up 2.5 percentage points from April’s figure of 48.6 percent.

“The Supplier Deliveries Index figure of 48.9 percent equaled the reading recorded in April. (Supplier Deliveries is the only ISM Report On Business index that is inversed; a reading of above 50 percent indicates slower deliveries, which is typical as the economy improves and customer demand increases.) The Inventories Index registered 47.9 percent, down 0.3 percentage point compared to April’s reading of 48.2 percent.

“The New Export Orders Index reading of 50.6 percent is 1.9 percentage points higher than the 48.7 percent registered in April. The Imports Index continued in expansion territory, registering 51.1 percent, 0.8 percentage point lower than the 51.9 percent reported in April. During its current five-month streak in expansion, the Imports Index has averaged 51.8 percent.”

Fiore continues, “U.S. manufacturing activity continued in contraction after growing in March, the first expansion for the sector since September 2022. Demand was soft again, output was stable, and inputs stayed accommodative. Demandslowing was reflected by the (1) New Orders Index dropping deeper into contraction, supported by additional comments regarding ‘softening,’ (2) New Export Orders Index edging back into marginal expansion, (3) Backlog of Orders Index regressing lower into contraction territory, and (4) Customers’ Inventories Index at the ‘just right’ level, neutral for future production. Output (measured by the Production and Employment indexes) advanced compared to April, with a combined 1.4-percentage point upward impact on the Manufacturing PMI calculation. Panelists’ companies maintained production levels month over month, and head count reductions continued in May. Inputs — defined as supplier deliveries, inventories, prices and imports — continued to accommodate future demand growth. The Supplier Deliveries Index was stable, and the Inventories Index was marginally lower compared to April. The Prices Index eased but remained in strong expansion (or ‘increasing’) territory, as most commodity driven costs continue to climb but at weaker rates. Imports continued to grow, at a slower rate in May.

“Demand remains elusive as companies demonstrate an unwillingness to invest due to current monetary policy and other conditions. These investments include supplier order commitments, inventory building and capital expenditures. Production execution continued to expand but was essentially flat compared to the previous month. Suppliers continue to have capacity, with lead times improving and shortages not as severe. Fifty-five percent of manufacturing gross domestic product (GDP) contracted in May, up from 34 percent in April. More importantly, the share of sector GDP registering a composite PMI calculation at or below 45 percent — a good barometer of overall manufacturing weakness — was 4 percent in May, the same as in April, but an indication of better health than the 27 percent recorded in January. Among the top six industries by contribution to manufacturing GDP in May, none had a PMI at or below 45 percent,” Fiore said.

The seven manufacturing industries reporting growth in May — in order — are: Printing & Related Support Activities; Petroleum & Coal Products; Paper Products; Textile Mills; Primary Metals; Fabricated Metal Products; and Chemical Products. The seven industries reporting contraction in May — in the following order — are: Wood Products; Plastics & Rubber Products; Machinery; Computer & Electronic Products; Furniture & Related Products; Transportation Equipment; and Food, Beverage & Tobacco Products.

What respondents are saying

“Seems like a minor slowdown is happening. With less spending in the economy, less pressure on us for our products.” [Chemical Products]

“Business conditions are pacing with budget and forecast for 2024. Certain markets are soft, but others are ahead of forecast, allowing us to maintain overall. Concerns with the economy continue to drive business decisions.” [Transportation Equipment]

“Volume continues to be challenging, mostly due to inflationary impacts.” [Food, Beverage & Tobacco Products]

“Orders have started to rebound, but inventory levels remain high enough for no impact on our supplier orders. It will take a few more strong months before supplier orders are reactivated or increased.” [Computer & Electronic Products]

“Backlog is dwindling as we get caught up on orders; new orders are not coming in as robust as the backlog is going down. Inflation continues to be a problem with pricing of raw material and interest rates. We expect a flat rest of calendar year 2024, especially given that it’s a presidential election year.” [Machinery]

“Export shipments continue to be soft as capital equipment sales remain lower than forecast. As a result, production is also trending lower and inventory that is not able to be pushed out is growing.” [Fabricated Metal Products]

“Demand has been strong the first few months — ahead of budget, consistent with last year. Bookings are starting to slow down for May and June. We are monitoring this data closely to determine if it is a sign of decline or our typical cyclical demand.” [Electrical Equipment, Appliances & Components]

“Business is picking up, with incoming bookings increasing.” [Furniture & Related Products]

“Overall softening of markets for the month of June. Some impacts on a regional basis with the continued weather in the northeast, south and southeast regions. Delays in shipments continue across multiple regions.” [Petroleum & Coal Products]

“General concern about overall industry economics. Pricing weakness continues, and we anticipate more headwinds in the coming months for spot orders and inflation. Contract order book remains steady.” [Primary Metals]

Manufacturing ISM® Report On Business® data is seasonally adjusted for the New Orders, Production, Employment and Inventories indexes.
*Number of months moving in current direction.

Commodities Reported Up/Down In Price And In Short Supply 

Commodities Up in Price
Aluminum (6); Brass; Copper (2); Diesel Fuel (3); Electrical Components; Electronic Components; Labor — Temporary; Natural Gas; Ocean Freight; Plastic Resins (5); Solvents (2); Steel Fabrications; and Zinc (2).

Commodities Down in Price
Packaging Components; Steel; Steel — Carbon (2); Steel — Hot Rolled; and Steel — Scrap.

Commodities in Short Supply
Electrical Components (44); Electrical Equipment (3); Electronic Components (2); and Printed Circuit Board Assemblies (PCBA).

Note: The number of consecutive months the commodity is listed is indicated after each item.

May 2024 Manufacturing Index Summaries 

Manufacturing PMI®
The U.S. manufacturing sector contracted for the second consecutive month in May, as the Manufacturing PMI registered 48.7 percent, down 0.5 percentage point compared to April’s reading of 49.2 percent. “After breaking a 16-month streak of contraction by expanding in March, the manufacturing sector has contracted the last two months, and at a faster rate in May. Two out of five subindexes that directly factor into the Manufacturing PMI are in expansion territory, up from one in April. The New Orders Index moved deeper into contraction after one month of expansion in March. Of the six biggest manufacturing industries, two (Fabricated Metal Products; and Chemical Products) registered growth in May,” says Fiore. A reading above 50 percent indicates that the manufacturing sector is generally expanding; below 50 percent indicates that it is generally contracting.

A Manufacturing PMI above 42.5 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the May Manufacturing PMI® indicates the overall economy grew for the 49th straight month after one month of contraction (April 2020). “The past relationship between the Manufacturing PMI® and the overall economy indicates that the May reading (48.7 percent) corresponds to a change of plus-1.7 percent in real gross domestic product (GDP) on an annualized basis,” says Fiore.

The Last 12 Months

New Orders
ISM’s New Orders Index contracted in May for the second month, registering 45.4 percent, a decrease of 3.7 percentage points compared to April’s figure of 49.1 percent and the lowest reading since May 2023 (42.9 percent). The New Orders Index hasn’t indicated consistent growth since a 24-month streak of expansion ended in May 2022. “Of the six largest manufacturing sectors, one (Chemical Products) reported increased new orders. Panelists indicated that the months of April and May experienced a slowing compared to the beginning of the year as housing, construction and capital expenditures activity continue to underperform,” says Fiore. A New Orders Index above 52.3 percent, over time, is generally consistent with an increase in the Census Bureau’s series on manufacturing orders (in constant 2000 dollars).

The four manufacturing industries that reported growth in new orders in May are: Printing & Related Support Activities; Petroleum & Coal Products; Miscellaneous Manufacturing; and Chemical Products. The eight industries reporting a decline in new orders in May — in the following order — are: Wood Products; Textile Mills; Nonmetallic Mineral Products; Transportation Equipment; Electrical Equipment, Appliances & Components; Fabricated Metal Products; Food, Beverage & Tobacco Products; and Machinery.

Production
The Production Index pulled back slightly, but remained in expansion territory in May, registering 50.2 percent, 1.1 percentage points lower than the April reading of 51.3 percent. The Production Index has been in expansion in four of the last five months. Of the six largest manufacturing sectors, two (Fabricated Metal Products; and Chemical Products) reported increased production. “Panelists’ companies marginally improved output levels compared to April. With new order rates weak and backlog levels sagging to historical lows, maintaining production output without growing intermediate goods and finished goods inventory will be a challenge in June,” says Fiore. An index above 52.2 percent, over time, is generally consistent with an increase in the Federal Reserve Board’s Industrial Production figures.

The six industries reporting growth in production during the month of May, in order, are: Petroleum & Coal Products; Printing & Related Support Activities; Nonmetallic Mineral Products; Paper Products; Fabricated Metal Products; and Chemical Products. The six industries reporting a decrease in production in May, in order, are: Plastics & Rubber Products; Food, Beverage & Tobacco Products; Transportation Equipment; Electrical Equipment, Appliances & Components; Machinery; and Computer & Electronic Products.

Employment
ISM’s Employment Index registered 51.1 percent in May, 2.5 percentage points higher than the April reading of 48.6 percent. “The index indicated employment expanded after seven consecutive months of contraction. Of the six big manufacturing sectors, three (Food, Beverage & Tobacco Products; Transportation Equipment; and Chemical Products) expanded employment in May. Many Business Survey Committee respondents’ companies are continuing to reduce head counts through layoffs (which accounted for 38 percent of reduction activity, down from 50 percent in April), attrition and hiring freezes. Panelists’ comments in May indicated an increase in staff reductions compared to April. The approximately 1-to-1 ratio of hiring versus reduction comments is consistent with activity from November 2023 through March,” says Fiore. An Employment Index above 50.3 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

Of 18 manufacturing industries, the seven industries reporting employment growth in May — in the following order — are: Printing & Related Support Activities; Petroleum & Coal Products; Nonmetallic Mineral Products; Food, Beverage & Tobacco Products; Transportation Equipment; Primary Metals; and Chemical Products. The six industries reporting a decrease in employment in May, in the following order, are: Wood Products; Plastics & Rubber Products; Furniture & Related Products; Computer & Electronic Products; Machinery; and Fabricated Metal Products.

Supplier Deliveries†
Delivery performance of suppliers to manufacturing organizations was faster in May, with the Supplier Deliveries Index registering 48.9 percent, the same reading reported in April. This is the third consecutive month of faster deliveries after one month of slower performance preceded by 16 straight months in “faster” territory. After a reading of 52.4 percent in September 2022, the index went into contraction territory in October and remained there until February. Of the six big industries, only one (Chemical Products) reported slower supplier deliveries in May. “Suppliers continue to support their customers adequately as suppliers deliver faster, make more reliable promises and slowly reduce lead times. Panelists predict faster supplier deliveries through the rest of 2024,” says Fiore. A reading below 50 percent indicates faster deliveries, while a reading above 50 percent indicates slower deliveries.

The six manufacturing industries reporting slower supplier deliveries in May, in order, are: Textile Mills; Petroleum & Coal Products; Primary Metals; Paper Products; Electrical Equipment, Appliances & Components; and Chemical Products. The seven industries reporting faster supplier deliveries in May — in the following order — are: Wood Products; Machinery; Fabricated Metal Products; Plastics & Rubber Products; Food, Beverage & Tobacco Products; Computer & Electronic Products; and Transportation Equipment.

Inventories
The Inventories Index registered 47.9 percent in May, down 0.3 percentage point compared to the reading of 48.2 reported in April. “Manufacturing inventories contracted at a slightly faster rate compared to the previous month. Of the six big industries, two (Fabricated Metal Products; and Food, Beverage & Tobacco Products) increased manufacturing inventories in May. Due to demand uncertainty, panelists’ companies are showing caution in inventory investment, relying more on suppliers to carry inventory ‘on demand.’ This caution likely extends to more acute management of accounts payable and accounts receivable activities,” says Fiore. An Inventories Index greater than 44.4 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).

Of 18 manufacturing industries, six reported higher inventories in May, in the following order: Paper Products; Textile Mills; Wood Products; Fabricated Metal Products; Electrical Equipment, Appliances & Components; and Food, Beverage & Tobacco Products. The nine industries reporting lower inventories in May — in the following order — are: Computer & Electronic Products; Petroleum & Coal Products; Nonmetallic Mineral Products; Furniture & Related Products; Machinery; Miscellaneous Manufacturing; Plastics & Rubber Products; Primary Metals; and Chemical Products.

Customers’ Inventories†
ISM’s Customers’ Inventories Index registered 48.3 percent in May, up 0.5 percentage point compared to the 47.8 percent reported in April. “Customers’ inventory levels decreased at a slower rate in May, with the index moving upward in ‘about right’ territory. For the second month, panelists report their companies’ customers have sufficient amounts of their products in inventory, which is considered neutral for future new orders and production,” says Fiore.

The six industries reporting customers’ inventories as too high in May, in order, are: Printing & Related Support Activities; Textile Mills; Wood Products; Computer & Electronic Products; Miscellaneous Manufacturing; and Plastics & Rubber Products. The seven industries reporting customers’ inventories as too low in May, in order, are: Nonmetallic Mineral Products; Primary Metals; Petroleum & Coal Products; Furniture & Related Products; Machinery; Electrical Equipment, Appliances & Components; and Chemical Products.

Prices†
The ISM Prices Index registered 57 percent, 3.9 percentage points lower compared to the April reading of 60.9 percent, indicating raw materials prices increased in May for the fifth month after eight consecutive months of decreases. Of the six largest manufacturing industries, five — Machinery; Chemical Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; and Fabricated Metal Products — reported price increases in May. “The Prices Index indicated strong expansion in May, but also easing compared to the previous month. Commodity prices continue to increase, especially fuel, natural gas, aluminum and plastics. Steel is showing signs of weakness. Twenty-six percent of companies reported higher prices in May, compared to 31 percent in April,” says Fiore. A Prices Index above 52.8 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Producer Price Index for Intermediate Materials.

In May, the 12 industries that reported paying increased prices for raw materials, in order, are: Primary Metals; Textile Mills; Paper Products; Printing & Related Support Activities; Electrical Equipment, Appliances & Components; Plastics & Rubber Products; Machinery; Chemical Products; Computer & Electronic Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; and Fabricated Metal Products. The three industries reporting paying decreased prices for raw materials in May are: Petroleum & Coal Products; Nonmetallic Mineral Products; and Transportation Equipment.

Backlog of Orders†
ISM’s Backlog of Orders Index registered 42.4 percent, down 3 percentage points from the 45.4 percent reported in April, indicating order backlogs contracted for the 20th consecutive month after a 27-month period of expansion. Only one of the six largest manufacturing industries (Chemical Products) reported expanded order backlogs in May. “The index remained in contraction in May, as new order rates were insufficient to allow backlogs to grow,” says Fiore.

Of 18 manufacturing industries, the four that reported growth in order backlogs in May are: Textile Mills; Paper Products; Primary Metals; and Chemical Products. The nine industries reporting lower backlogs in May — in the following order — are: Wood Products; Electrical Equipment, Appliances & Components; Computer & Electronic Products; Machinery; Transportation Equipment; Furniture & Related Products; Food, Beverage & Tobacco Products; Miscellaneous Manufacturing; and Fabricated Metal Products.

New Export Orders†
ISM’s New Export Orders Index registered 50.6 percent in May, up 1.9 percentage points from April’s reading of 48.7 percent. “The New Export Orders Index reading indicates that export orders expanded slightly in May after one month of contraction and two straight months of expansion before that. Panelists’ comments continue to support marginal improvement in demand from overseas customers,” says Fiore.

The four industries reporting growth in new export orders in May are: Wood Products; Chemical Products; Food, Beverage & Tobacco Products; and Computer & Electronic Products. The six industries reporting a decrease in new export orders in May — in the following order — are: Paper Products; Furniture & Related Products; Plastics & Rubber Products; Primary Metals; Transportation Equipment; and Machinery. Seven industries reported no change in exports in May.

Imports†
ISM’s Imports Index registered 51.1 percent in May, cooling somewhat with a decrease of 0.8 percentage point compared to April’s reading of 51.9 percent. “Imports grew for the fifth consecutive month after contracting for 14 consecutive months. Respondent companies continue to increase on-hand inventories cautiously, as future growth prospects remain cloudy. Ocean freight costs continue to rise as a result of extended transit times, reducing available container and ship availability,” says Fiore.

The eight industries reporting an increase in import volumes in May — listed in the following order — are: Printing & Related Support Activities; Textile Mills; Paper Products; Petroleum & Coal Products; Primary Metals; Food, Beverage & Tobacco Products; Fabricated Metal Products; and Transportation Equipment. The seven industries that reported lower volumes of imports in May, in order, are: Wood Products; Nonmetallic Mineral Products; Furniture & Related Products; Miscellaneous Manufacturing; Electrical Equipment, Appliances & Components; Computer & Electronic Products; and Chemical Products.

†The Supplier Deliveries, Customers’ Inventories, Prices, Backlog of Orders, New Export Orders, and Imports indexes do not meet the accepted criteria for seasonal adjustments.

Buying Policy
The average commitment lead time for Capital Expenditures in May was 172 days, an increase of two days compared to April. Average lead time in May for Production Materials was 80 days, an increase of one day. Average lead time for Maintenance, Repair and Operating (MRO) Supplies was 44 days, the same as in April.

Posted: June 3, 2024

Source: Institute for Supply Management.

SUMMARY

Manufacturing

• Operating rate is 82.8 percent of normal capacity.
• Production capacity is expected to increase 2.4 percent in 2024.
• Capital expenditures are expected to increase 1 percent in 2024.
• Prices paid increased 1.6 percent through April 2024.
• Prices of raw materials are expected to increase a total of 1.9 percent for all of 2024, indicating an expected increase of 0.3 percentage point for the rest of the year.
• Manufacturing employment is expected to increase 0.3 percent in 2024.
• Manufacturing revenues are expected to increase 2.1 percent in 2024.
• The manufacturing sector is expected to grow slightly in 2024.

Services

• Operating rate is 88.6 percent of normal capacity.
• Production capacity is expected to increase 2.6 percent in 2024.
• Capital expenditures are expected to increase 1.4 percent in 2024.
• Prices paid increased 2.3 percent through April 2024.
• Prices of raw materials are expected to increase a total of 3.2 percent for all of 2024, indicating expectations of continuing inflation.
• Services employment is expected to increase 0.8 percent in 2024.
• Services revenues are expected to increase 2.9 percent in 2024.
• The services sector is projected to grow slightly in 2024.

The U.S. economy will continue to softly expand for the rest of 2024, say the nation’s purchasing and supply executives in the Spring 2024 Semiannual Economic Forecast. Expectations for the remainder of 2024 are similar to those expressed in December 2023, despite continued inflation concerns and geopolitical uncertainty.

These projections are part of the forecast issued by the Institute for Supply Management® (ISM®) Business Survey Committees. The forecast was presented today by Timothy R. Fiore, CPSM, C.P.M., Chair of the ISM Manufacturing Business Survey Committee, and Anthony S. Nieves, CPSM, C.P.M., A.P.P., CFPM, Chair of the ISM Services Business Survey Committee.

Manufacturing Summary
Revenue for 2024 is expected to increase, on average, by 2.1 percent. This is 3.5 percentage points lower than the December 2023 forecast of 5.6 percent, and 1.2 percentage points higher than the 0.9-percentage point year-over-year increase reported for 2023. Forty-four percent of respondents say that revenues for 2024 will increase, on average, 8.6 percent compared to 2023. Fourteen percent say revenues will decrease (12.3 percent, on average), and 42 percent indicate no change. With an operating rate of 82.8 percent and projected increases in capital expenditures (1 percent), prices paid for raw materials (1.9 percent) and employment (0.3 percent) by the end of 2024, the manufacturing sector continues its comeback from the turmoil that began in 2020. “With 12 manufacturing industries expecting revenue growth in 2024 and nine industries expecting employment growth in 2024, panelists forecast that recovery will continue the rest of the year, albeit somewhat softer than originally expected. Sentiment in each industry was generally consistent with performance reports in the April 2024 Manufacturing ISM® Report On Business®, as well as the fall Semiannual Economic Forecast conducted in December,” says Fiore.

Twelve of 18 industries report projected revenue increases for the rest of 2024, listed in order: Apparel, Leather & Allied Products; Food, Beverage & Tobacco Products; Transportation Equipment; Computer & Electronic Products; Chemical Products; Nonmetallic Mineral Products; Primary Metals; Textile Mills; Furniture & Related Products; Fabricated Metal Products; Electrical Equipment, Appliances & Components; and Paper Products.

Services Summary
Respondents expect a 2.9-percent net increase in overall revenues, which is 4 percentage points lower than the 6.9-percent increase forecast in December 2023. Thirty-six percent of respondents say that revenues for 2024 will increase, on average, 10.3 percent compared to 2023. Meanwhile, 10 percent expect their revenues to decrease (7.5 percent, on average), and 54 percent indicate no change. “The services sector will continue to grow for the rest of 2024. Services companies are currently operating at 88.6 percent of normal capacity. Supply managers indicate that prices are expected to increase 3.2 percent over the year, reflecting increasing inflation. Employment is projected to increase 0.8 percent. Thirteen industries forecast increased revenues, down from the 16 industries that predicted increases in December 2023,” says Nieves.

Thirteen of 18 industries expect revenue increases in 2024, listed in order: Retail Trade; Mining; Transportation & Warehousing; Other Services; Management of Companies & Support Services; Accommodation & Food Services; Professional, Scientific & Technical Services; Construction; Wholesale Trade; Public Administration; Utilities; Information; and Finance & Insurance.

Operating Rate

Manufacturing
Purchasing and supply executives report that their companies are operating, on average, at 82.8 percent of normal capacity, 0.2 percentage point lower than the figure reported in December 2023. The 10 industries reporting operating capacity levels above the average rate of 82.8 percent — listed in order — are: Paper Products; Textile Mills; Petroleum & Coal Products; Transportation Equipment; Computer & Electronic Products; Wood Products; Machinery; Primary Metals; Food, Beverage & Tobacco Products; and Fabricated Metal Products.

Services
Organizations are operating, on average, at 88.6 percent of normal capacity, according to Business Survey Committee respondents. This is 2.1 percentage points higher compared to December 2023. The eight industries operating at capacity levels above the average rate of 88.6 percent — listed in order — are: Educational Services; Other Services; Finance & Insurance; Retail Trade; Utilities; Agriculture, Forestry, Fishing & Hunting; Construction; and Public Administration.

Production Capacity

Manufacturing
Production capacity is expected to increase 2.4 percent in 2024; in December, panelists reported an increase of 0.7 percentage point for 2023 and projected an increase of 7.8 percent this year. Thirty percent of respondents expect capacity increases of, on average, 12.6 percent; 7 percent expect decreases of, on average, 19.7 percent; and 62 percent expect no change. The 12 industries expecting production capacity increases for 2024 — listed in order — are: Nonmetallic Mineral Products; Furniture & Related Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Fabricated Metal Products; Primary Metals; Chemical Products; Plastics & Rubber Products; Petroleum & Coal Products; Transportation Equipment; Electrical Equipment, Appliances & Components; and Paper Products.

Services
The capacity to produce products or provide services in the services sector is expected to increase 2.6 percent in 2024. This compares to an increase of 3.9 percent reported for 2023 and a December projection of a 4.1-percent increase for this year. Sixteen percent of services respondents expect their capacity for 2024 to increase, on average, 17.6 percent, and 2 percent foresee capacity decreasing, on average, 11.2 percent. Eighty-two percent expect no change in capacity. The 14 industries expecting production capacity increases for 2024 — listed in order — are: Retail Trade; Mining; Professional, Scientific & Technical Services; Construction; Transportation & Warehousing; Arts, Entertainment & Recreation; Accommodation & Food Services; Wholesale Trade; Information; Management of Companies & Support Services; Public Administration; Health Care & Social Assistance; Utilities; and Finance & Insurance.

Predicted Capital Expenditures — 2024 vs. 2023

Manufacturing
Survey respondents expect a 1-percent increase in capital expenditures in 2024, much lower than the 11.9 percent increase forecast by the panel in December. Twenty-four percent of respondents predict increased (on average, 19.8 percent) capital expenditures in 2024, 14 percent said their capital spending would decrease (on average, 26.2 percent), and 62 percent expect no change. The 10 industries expecting capital expenditure increases for 2024 — listed in order — are: Food, Beverage & Tobacco Products; Furniture & Related Products; Nonmetallic Mineral Products; Primary Metals; Fabricated Metal Products; Petroleum & Coal Products; Chemical Products; Paper Products; Transportation Equipment; and Machinery.

Services
This year, services purchasing and supply executives expect capital expenditures to increase 1.4 percent compared to 2023. The 25 percent of respondents expecting to spend more predict an average increase of 16 percent, 12 percent anticipate an average decrease of 20.8 percent, and 63 percent expect no change in capital expenditures in 2024. The 10 industries expecting an increase in capital expenditures — listed in order — are: Public Administration; Utilities; Retail Trade; Accommodation & Food Services; Mining; Transportation & Warehousing; Professional, Scientific & Technical Services; Educational Services; Construction; and Finance & Insurance.

Prices — Changes Between End of 2023 and May 2024

Manufacturing
In the December forecast, respondents predicted an increase of 3.2 percent in prices paid during the first four months of 2024; they now report prices increased by 1.6 percent. The 45 percent who say their prices are higher now than at the end of 2023 report an average increase of 5.8 percent, while 17 percent reported lower prices (by 6 percent, on average). The remaining 39 percent indicated no change for the period. Seventeen manufacturing industries reported an increase in prices paid for the first part of 2024, listed in order: Textile Mills; Printing & Related Support Activities; Apparel, Leather & Allied Products; Plastics & Rubber Products; Nonmetallic Mineral Products; Primary Metals; Paper Products; Chemical Products; Computer & Electronic Products; Machinery; Miscellaneous Manufacturing; Fabricated Metal Products; Petroleum & Coal Products; Electrical Equipment, Appliances & Components; Transportation Equipment; Furniture & Related Products; and Food, Beverage & Tobacco Products.

Services
Services respondents report that purchases during the first four months of this year cost an average of 2.3 percent more than at the end of 2023. This is 1.4 percentage points less than the 3.7-percent increase predicted in December. Forty-six percent of services respondents report that prices increased, on average, 6.7 percent; 11 percent report price decreases of, on average, 7.2 percent; and 43 percent indicate no change. Fourteen of 18 industries reported an increase in prices paid in the first part of 2024, listed in order: Public Administration; Management of Companies & Support Services; Utilities; Retail Trade; Professional, Scientific & Technical Services; Transportation & Warehousing; Construction; Educational Services; Finance & Insurance; Health Care & Social Assistance; Wholesale Trade; Arts, Entertainment & Recreation; Other Services; and Information.

Prices — Predicted Changes Between End of 2023 and End of 2024

Manufacturing
Survey respondents expect a year-over-year, net-average prices increase of 1.9 percent for 2024. With respondents reporting price increases of 1.6 percent through April 2024, prices are projected to increase slightly for the rest of the year. Forty-seven percent of respondents project prices to increase, on average, 6.1 percent for the full year, 20 percent anticipate a decrease (5.2 percent, on average), and 33 percent expect no change. The 15 industries expect price increases for all of 2024, listed in order are: Textile Mills; Apparel, Leather & Allied Products; Primary Metals; Plastics & Rubber Products; Nonmetallic Mineral Products; Chemical Products; Paper Products; Furniture & Related Products; Fabricated Metal Products; Transportation Equipment; Miscellaneous Manufacturing; Petroleum & Coal Products; Computer & Electronic Products; Electrical Equipment, Appliances & Components; and Machinery.

Services
This year, services respondents expect prices to increase, on average, 3.2 percent compared to the end of 2023. With respondents reporting an increase of 2.3 percent through April 2024, prices are projected to increase over the rest of the year. Forty-eight of respondents anticipate increases of, on average, 7.2 percent; 7 percent expect decreases of, on average, 5 percent; and 45 percent do not expect prices to change. Fifteen of 18 industries project price increases for all of 2024, listed in order: Public Administration; Retail Trade; Arts, Entertainment & Recreation; Utilities; Wholesale Trade; Management of Companies & Support Services; Construction; Health Care & Social Assistance; Professional, Scientific & Technical Services; Educational Services; Finance & Insurance; Transportation & Warehousing; Accommodation & Food Services; Information; and Other Services.

Employment — Predicted Changes Between End of 2023 and End of 2024

Manufacturing
ISM’s Manufacturing Business Survey Committee respondents forecast that sector employment in 2024 will increase 0.3 percentage point year over year. Twenty-three percent of respondents expect employment to be, on average, 7.4 percent higher; 15 percent predict employment to decrease, on average, 8.7 percent; and 62 percent expect employment levels to be unchanged. The nine industries projecting employment growth during 2024 — listed in order — are: Nonmetallic Mineral Products; Food, Beverage & Tobacco Products; Primary Metals; Plastics & Rubber Products; Petroleum & Coal Products; Fabricated Metal Products; Textile Mills; Computer & Electronic Products; and Chemical Products.

Services
Sector employment will increase 0.8 percent in 2024, according to the forecast of ISM’s Services Business Survey Committee respondents. For the remaining months of the year, 25 percent expect employment to increase, on average, 5.2 percent; 8 percent anticipate employment to decrease, on average, 7 percent; and 67 percent expect no change in employment levels. The 13 industries anticipating increases in employment — listed in order — are: Other Services; Retail Trade; Accommodation & Food Services; Mining; Arts, Entertainment & Recreation; Construction; Transportation & Warehousing; Utilities; Public Administration; Health Care & Social Assistance; Wholesale Trade; Real Estate, Rental & Leasing; and Professional, Scientific & Technical Services.

Business Revenues Comparison — 2024 vs. 2023

Manufacturing
Increased revenues are expected this year, as purchasing and supply management executives predict an overall net increase of 2.1 percent compared to 2023. This is 3.5 percentage points lower than the 5.6-percent increase forecast in December, and 1.2 percentage points higher than the 0.9-percentage point year-over-year increase reported for 2023. Forty-four percent of respondents say that revenues for 2024 will increase, on average, 8.6 percent; 14 percent say their revenues will decrease, on average, 12.3 percent; and 42 percent forecast no change. The 12 manufacturing industries expecting increases in revenue in 2024 — listed in order — are: Apparel, Leather & Allied Products; Food, Beverage & Tobacco Products; Transportation Equipment; Computer & Electronic Products; Chemical Products; Nonmetallic Mineral Products; Primary Metals; Textile Mills; Furniture & Related Products; Fabricated Metal Products; Electrical Equipment, Appliances & Components; and Paper Products.

Services
This year, services purchasing and supply management executives predict a net increase of 2.9 percent in sector business revenue compared to 2023. This is 4 percentage points lower than the 6.9-percent increase forecast in December, and 1.3 percentage points lower than the 4.2-percent increase reported for 2023. Thirty-six percent of respondents indicate revenues for 2024 will increase, on average, 10.3 percent; 10 percent say their revenues will decrease, on average, 7.5 percent; and 54 percent expect no change. Thirteen of 18 services industries project revenue increases in 2024, listed in order: Retail Trade; Mining; Transportation & Warehousing; Other Services; Management of Companies & Support Services; Accommodation & Food Services; Professional, Scientific & Technical Services; Construction; Wholesale Trade; Public Administration; Utilities; Information; and Finance & Insurance.

Special Question Topic No. 1: Hiring Workers To Fill Open Positions

We asked the panel, “In the past six months, has your organization had difficulty hiring workers to fill open positions?”

Answer options:

Yes, we have had difficulty hiring

No, we have not had difficulty hiring

No, we are reducing head count or keeping it flat

No, we have not had any open positions

No, we are on a hiring freeze.

Respondents indicated:

Special Question Topic No. 2: Hiring Difficulties

We asked the panel, “If ‘yes,’ what have you done to deal with these difficulties?”

Answer options:

We raised wages (or used other forms of monetary compensation) to recruit new hires

We didn’t hire/were not able to hire as many workers as we would have liked

We lowered our hiring standards

Something else.

Respondents indicated:

Special Question Topic No. 2: No Hiring Difficulties

We asked the panel, “If you have not had difficulty hiring, why not?”

Answer options:

We raised wages in order to attract the applicants we needed

We didn’t have difficulty hiring because we weren’t trying to hire new workers

The local labor market is not that tight; it was easy to find an ample supply of applicants

We lowered our hiring standards

Something else.

Respondents indicated:

Special Question Topic No. 4: No Hiring Difficulties

We asked the panel, “If ‘no, we’re reducing head count or keeping it flat,’ how?”

Answer options:

Reduced head count via layoffs

Reduced head count via attrition

Freezing hiring and holding on to qualified labor (but not filling vacated positions)

Freezing hiring, but refilling vacated positions

Something else.

Respondents indicated:

Special Question Topic Nos. 6 and 6: Supply Chain Problems

We asked the panel, “Do you anticipate supply chain problems for the third quarter (Q3) and fourth quarter (Q4) to be better, the same or worse?”

Respondents indicated:

Special Question Topic No. 7: Cause Of Supply Chain Disruptions

We asked the panel, “What is the cause of most of the supply chain disruptions in the manufacturing sector?”

Answer options:

Foreign developments, foreign sourced microchips

Foreign developments, foreign sourced minerals

Foreign developments, other foreign sourced supplies

Other foreign developments

Domestic developments, port delays

Domestic developments, lack of truck drivers

Domestic developments, domestically produced supplies

Other domestic developments.

Respondents indicated:

Special Question Topic No. 8: Why are Capital Expenditures Increasing?

We asked the panel, “If your organization is increasing capital expenditures (CapEx), what are the main reason(s)? Rank all options (use 0 if they do not apply), using 1 for most important, 2 for second most important, and so on.”

Respondents indicated, based on average ranking for each option:

Special Question Topic No. 9: Is Demand Meeting Expectations?

We asked the panel, “How would you define your current demand?”

Respondents indicated:

Posted: May 15, 2024

Source: Institute for Supply Management

The report was issued today by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee:

“The Manufacturing PMI® registered 49.2 percent in April, down 1.1 percentage points from the 50.3 percent recorded in March. The overall economy continued in expansion for the 48th month after one month of contraction in April 2020. (A Manufacturing PMI® above 42.5 percent, over a period of time, generally indicates an expansion of the overall economy.) The New Orders Index moved back into contraction territory after one month of expansion, registering 49.1 percent, 2.3 percentage points lower than the 51.4 percent recorded in March. The April reading of the Production Index (51.3 percent) is 3.3 percentage points lower than March’s figure of 54.6 percent. The Prices Index registered 60.9 percent, up 5.1 percentage points compared to the reading of 55.8 percent in March. The Backlog of Orders Index registered 45.4 percent, down 0.9 percentage point compared to the 46.3 percent recorded in March. The Employment Index registered 48.6 percent, up 1.2 percentage points from March’s figure of 47.4 percent.

“The Supplier Deliveries Index figure of 48.9 percent is 1 percentage point lower than the 49.9 percent recorded in March. (Supplier Deliveries is the only ISM Report On Business index that is inversed; a reading of above 50 percent indicates slower deliveries, which is typical as the economy improves and customer demand increases.) The Inventories Index registered 48.2 percent, the same reading as in March.

“The New Export Orders Index reading of 48.7 percent is 2.9 percentage points lower than the 51.6 percent registered in March. The Imports Index continued in expansion territory, registering 51.9 percent, 1.1 percentage points lower than the 53 percent reported in March and February. In the last three months, the Imports Index has been at its highest levels since July 2022 (54.4 percent).”

Fiore continued: “The U.S. manufacturing sector dropped back into contraction after growing in March, the first time since September 2022 that the sector reported expansion. Although demand improvement slowed, output remains positive and inputs stayed accommodative. Demand softening was reflected by the (1) New Orders Index dropping back into contraction, offset by fewer comments regarding ‘softening,’ (2) New Export Orders Index indicating contraction after two months of expansion, offset by panelists’ more optimistic comments, (3) Backlog of Orders Index remaining in moderate contraction territory, dropping back slightly compared to March, and (4) Customers’ Inventories Index at the ‘just right’ level, neutral for future production. Output (measured by the Production and Employment indexes) moderated compared to March, with a combined 2.1-percentage point downward impact on the Manufacturing PMI calculation. Panelists’ companies slightly increased their production levels month over month, and head-count reductions continued (but showed signs of easing) in April. Inputs — defined as supplier deliveries, inventories, prices and imports — continued to accommodate future demand growth. The Supplier Deliveries Index dropped marginally, continuing in ‘faster’ territory, and the Inventories Index was flat (the same reading as in March) and in slight contraction territory. The Prices Index moved further upward into strong expansion (or ‘increasing’) territory, as commodity driven costs continue to climb. Imports continued to grow, at a slower rate in April.

“Demand remains at the early stages of recovery, with continuing signs of improving conditions. Production execution continued to expand in March, but at a slower rate of growth than in prior months. Suppliers continue to have capacity but work to improve lead times, due to their raw material supply chain disruptions. Thirty-four percent of manufacturing gross domestic product (GDP) contracted in April, up from 30 percent in March. More importantly, the share of sector GDP registering a composite PMI calculation at or below 45 percent — a good barometer of overall manufacturing weakness — was 4 percent in April, higher than the 1-percent figure in March, but an indication of better health than the 27 percent recorded in January. Among the top six industries by contribution to manufacturing GDP in April, none had a PMI at or below 45 percent,” says Fiore.

The nine manufacturing industries reporting growth in April — in order — are: Nonmetallic Mineral Products; Printing & Related Support Activities; Primary Metals; Textile Mills; Electrical Equipment, Appliances & Components; Petroleum & Coal Products; Transportation Equipment; Chemical Products; and Plastics & Rubber Products. The seven industries reporting contraction in April — in the following order — are: Miscellaneous Manufacturing; Machinery; Furniture & Related Products; Wood Products; Food, Beverage & Tobacco Products; Fabricated Metal Products; and Paper Products.

What Respondents Are Saying

“Conditions are improving as demand is starting to recover. Costs continue to be a major concern as suppliers that rapidly increased prices in the follow-up from COVID-19 are slow to return to pre-pandemic levels.” [Chemical Products]

“Sales continue to exceed expectations in 2024. The forecasted dip in commercial vehicle production volumes appears to be avoided. Operational output is still strong, and the supply chain has the capacity to support. International supply chain risks have been minimized, but the frequency of supplier insolvencies or bankruptcies appears to be increasing.” [Transportation Equipment]

“Order flow has stabilized. It took some customers longer to replenish their supply chain network after the fourth-quarter rush we commonly have. Order rates are expected to remain stable through August.” [Food, Beverage & Tobacco Products]

“Some small indications of market improvement in China for our instruments and technology. Recovery is still slower than we had hoped, and macroeconomic uncertainty remains in Europe and the Middle East, as well as domestically in the U.S. with ongoing inflationary pressures and anticipation for the (upcoming) election.” [Computer & Electronic Products]

“Market conditions have definitely softened. Thankfully, our backlog is strong and will get us through the year. When conditions improve as expected later this year, we will be in a good position to continue building the business. We are a manufacturer of automated packaging equipment for the food and beverage industry, and with a continued shortage of workers, our customers are requiring more and more automation.” [Machinery]

“Business is slowing down — it has been a gradual decline for the last several months. We are not seeing new orders at last year’s level, or at this year’s budgeted levels.” [Fabricated Metal Products]

“There has been a lot of volatility in sales. On average, our sales look flat, but the volatility is concerning.” [Electrical Equipment, Appliances & Components]

“Business remained strong through the first quarter and has started strong for the second quarter. Commercial construction is still going well but on a regional basis, with the Southeast the strongest.” [Nonmetallic Mineral Products]

“The major factor affecting our business is the uncertainty of the Federal Reserve’s handling of interest rates, which will affect our customers’ businesses, thereby affecting ours.” [Plastics & Rubber Products]

“Business is stable, and orders have been consistent. We’re quoting new business for the factory, and automotive builds continue at averages but not near maximum outputs. Workforce is stable, with the turnover ratio dropping considerably. Salaries and hourly rates increasing to meet inflationary pressures.” [Primary Metals]

Manufacturing ISM® Report On Business® data is seasonally adjusted for the New Orders, Production, Employment and Inventories indexes.
*Number of months moving in current direction.

Commodities Reported Up/Down In Price And In Short Supply

Commodities Up in Price
Aluminum (5); Copper; Corrugated Boxes (2); Corrugated Sheets (2); Crude Oil (2); Diesel; Gasoline (2); High-Density Polyethylene (HDPE) Resin; Plastic Resins (4); Polypropylene (7); Precious Metals; Solvents; Steel (10); Steel — Carbon*; Steel — Hot Rolled; Steel Products; Titanium Dioxide; and Zinc.

Commodities Down in Price
Steel — Carbon*.

Commodities in Short Supply
Electrical Components (43); Electrical Equipment (3); Electronic Components; and Labor — Temporary.

Note: The number of consecutive months the commodity is listed is indicated after each item.
*Indicates both up and down in price.

April Maufacturing Index Summaries

Manufacturing PMI®
The U.S. manufacturing sector contracted in April, as the Manufacturing PMI® registered 49.2 percent, down 1.1 percentage points compared to March’s reading of 50.3 percent. “After breaking a 16-month streak of contraction with an expansion in March, the manufacturing sector dropped back into contraction. Only one out of five subindexes that directly factor into the Manufacturing PMI is in expansion territory, down from two in March. The New Orders Index moved back into contraction after one month of expansion. Of the six biggest manufacturing industries, two (Transportation Equipment; and Chemical Products) registered growth in April,” says Fiore. A reading above 50 percent indicates that the manufacturing sector is generally expanding; below 50 percent indicates that it is generally contracting.

A Manufacturing PMI® above 42.5 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the April Manufacturing PMI® indicates the overall economy grew for the 48th straight month after one month of contraction (April 2020). “The past relationship between the Manufacturing PMI® and the overall economy indicates that the April reading (49.2 percent) corresponds to a change of plus-1.9 percent in real gross domestic product (GDP) on an annualized basis,” says Fiore.

The Last 12 Months

New Orders
ISM’s New Orders Index moved back into contraction in April, registering 49.1 percent, a decrease of 2.3 percentage points compared to March’s reading of 51.4 percent. The New Orders Index hasn’t indicated consistent growth since a 24-month streak of expansion ended in May 2022. “Of the six largest manufacturing sectors, three (Computer & Electronic Products; Chemical Products; and Fabricated Metal Products) reported increased new orders. Panelists indicated continuing improvement in demand, with comments of ‘softening’ new orders at their lowest level since the special reporting of such sentiment began in May 2022,” says Fiore. A New Orders Index above 52.3 percent, over time, is generally consistent with an increase in the Census Bureau’s series on manufacturing orders (in constant 2000 dollars).

The eight manufacturing industries that reported growth in new orders in April — in the following order — are: Printing & Related Support Activities; Nonmetallic Mineral Products; Plastics & Rubber Products; Paper Products; Primary Metals; Computer & Electronic Products; Chemical Products; and Fabricated Metal Products. The five industries reporting a decline in new orders in April are: Textile Mills; Food, Beverage & Tobacco Products; Machinery; Electrical Equipment, Appliances & Components; and Miscellaneous Manufacturing.

Production
The Production Index pulled back but remained in expansion territory in April, registering 51.3 percent, 3.3 percentage points lower than the March reading of 54.6 percent. The Production Index had been in contraction for 11 of the previous 16 months. Of the six largest manufacturing sectors, four (Transportation Equipment; Chemical Products; Computer & Electronic Products; and Fabricated Metal Products) reported increased production. “Panelists’ companies marginally improved output levels compared to March,” says Fiore. An index above 52.2 percent, over time, is generally consistent with an increase in the Federal Reserve Board’s Industrial Production figures.

The eight industries reporting growth in production during the month of April, in order, are: Plastics & Rubber Products; Petroleum & Coal Products; Nonmetallic Mineral Products; Transportation Equipment; Chemical Products; Computer & Electronic Products; Electrical Equipment, Appliances & Components; and Fabricated Metal Products. The three industries reporting a decrease in production in April are: Wood Products; Food, Beverage & Tobacco Products; and Machinery. Seven industries reported no change in production in April.

Employment
ISM’s Employment Index registered 48.6 percent in April, 1.2 percentage points higher than the March reading of 47.4 percent. “The index indicated employment contracted for the seventh month in a row (but at a slower rate in April) after one month of expansion and three months of contraction before that. Of the six big manufacturing sectors, two (Transportation Equipment; and Computer & Electronic Products) expanded employment in April. Many Business Survey Committee respondents’ companies are continuing to reduce head counts through layoffs (which accounted for 50 percent of reduction activity, down from 76 percent in March), attrition and hiring freezes. Panelists’ comments in April indicated a slowing of staff-cutting efforts. The approximately 1.7-to-1 ratio of hire versus reduction comments is the highest since September 2023, when it was 2-to-1,” says Fiore. An Employment Index above 50.3 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

Of 18 manufacturing industries, the four industries reporting employment growth in April are: Textile Mills; Nonmetallic Mineral Products; Transportation Equipment; and Computer & Electronic Products. The seven industries reporting a decrease in employment in April, in the following order, are: Paper Products; Miscellaneous Manufacturing; Furniture & Related Products; Plastics & Rubber Products; Fabricated Metal Products; Machinery; and Chemical Products. Seven industries reported no change in employment in April as compared to March.

Supplier Deliveries†
Delivery performance of suppliers to manufacturing organizations was marginally faster in April for the second consecutive month after one month of slowing preceded by 16 straight months in “faster” territory. The Supplier Deliveries Index, which registered 48.9 percent, was 1 percentage point lower than the 49.9 percent reported in March. After a reading of 52.4 percent in September 2022, the index went into contraction territory in October and remained there until February. Of the six big industries, only one (Food, Beverage & Tobacco Products) reported slower supplier deliveries in April. “Suppliers continue to support their customers adequately as suppliers deliver faster, make more reliable promises and slowly reduce lead times,” says Fiore. A reading below 50 percent indicates faster deliveries, while a reading above 50 percent indicates slower deliveries.

The four manufacturing industries reporting slower supplier deliveries in April are: Nonmetallic Mineral Products; Primary Metals; Food, Beverage & Tobacco Products; and Electrical Equipment, Appliances & Components. The eight industries reporting faster supplier deliveries in April — in the following order — are: Wood Products; Miscellaneous Manufacturing; Plastics & Rubber Products; Fabricated Metal Products; Computer & Electronic Products; Machinery; Transportation Equipment; and Chemical Products. Six industries reported no change in delivery performance in April compared to March.

Inventories
The Inventories Index registered 48.2 percent in April, the same reading as reported in March. “Manufacturing inventories contracted at the same rate compared to the previous month. Of the six big industries, only one (Food, Beverage & Tobacco Products) increased manufacturing inventories in April. Panelists’ companies continue to indicate a willingness to invest in manufacturing inventory to improve on-time deliveries, gain precision in revenue projections and improve customer service. However, they are proceeding judiciously on this objective, preferring to wait for additional demand,” says Fiore. An Inventories Index greater than 44.4 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).

Of 18 manufacturing industries, four reported higher inventories in April: Wood Products; Electrical Equipment, Appliances & Components; Nonmetallic Mineral Products; and Food, Beverage & Tobacco Products. The eight industries reporting lower inventories in April — in the following order — are: Miscellaneous Manufacturing; Computer & Electronic Products; Furniture & Related Products; Plastics & Rubber Products; Fabricated Metal Products; Chemical Products; Machinery; and Transportation Equipment. Six industries reported no change in raw materials inventories in April compared to March.

Customers’ Inventories†
ISM’s Customers’ Inventories Index registered 47.8 percent in April, up 3.8 percentage points compared to the 44 percent reported in March. “Customers’ inventory levels decreased at a slower rate in April, with the index moving upward in ‘too low’ territory. Panelists report their companies’ customers have sufficient amounts of their products in inventory, which is considered neutral for future new orders and production,” says Fiore.

The five industries reporting customers’ inventories as too high in April are: Textile Mills; Wood Products; Food, Beverage & Tobacco Products; Miscellaneous Manufacturing; and Plastics & Rubber Products. The seven industries reporting customers’ inventories as too low in April, in order, are: Primary Metals; Paper Products; Fabricated Metal Products; Machinery; Chemical Products; Transportation Equipment; and Computer & Electronic Products.

Prices†
The ISM Prices Index registered 60.9 percent, 5.1 percentage points higher compared to the March reading of 55.8 percent, indicating raw materials prices increased in April for the fourth month in a row after eight consecutive months of decreases. Of the six largest manufacturing industries, four — Chemical Products; Fabricated Metal Products; Computer & Electronic Products; and Machinery — reported price increases in April. “The Prices Index indicated strong expansion in April, with its highest reading since June 2022 (78.7 percent). Commodity prices continue to increase, especially crude oil, aluminum, steel and plastics. Thirty-one percent of companies reported higher prices in April, compared to 24 percent in March,” says Fiore. A Prices Index above 52.8 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Producer Price Index for Intermediate Materials.

In April, the 13 industries that reported paying increased prices for raw materials, in order, are: Printing & Related Support Activities; Textile Mills; Petroleum & Coal Products; Plastics & Rubber Products; Chemical Products; Nonmetallic Mineral Products; Paper Products; Electrical Equipment, Appliances & Components; Fabricated Metal Products; Primary Metals; Computer & Electronic Products; Furniture & Related Products; and Machinery. The only industry reporting paying decreased prices for raw materials in April is Food, Beverage & Tobacco Products.

Backlog of Orders†
ISM’s Backlog of Orders Index registered 45.4 percent, down 0.9 percentage point from the 46.3 percent reported in March, indicating order backlogs contracted for the 19th consecutive month after a 27-month period of expansion. None of the six largest manufacturing industries reported expanded order backlogs in April. “The index remained in contraction in April, as new order rates and production output were insufficient to allow backlogs to grow,” says Fiore.

Of 18 manufacturing industries, the three that reported growth in order backlogs in April are: Wood Products; Nonmetallic Mineral Products; and Plastics & Rubber Products. The 11 industries reporting lower backlogs in April — in the following order — are: Textile Mills; Furniture & Related Products; Primary Metals; Paper Products; Transportation Equipment; Miscellaneous Manufacturing; Machinery; Computer & Electronic Products; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; and Chemical Products.

New Export Orders†
ISM’s New Export Orders Index registered 48.7 percent in April, down 2.9 percentage points from March’s reading of 51.6 percent. “The New Export Orders Index reading indicates that export orders contracted in April following two straight months of expansion and eight months of contraction prior to that. Panelists’ comments continue to support improvement in demand from overseas customers,” says Fiore.

The five industries reporting growth in new export orders in April are: Wood Products; Plastics & Rubber Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; and Electrical Equipment, Appliances & Components. The six industries reporting a decrease in new export orders in April — in the following order — are: Furniture & Related Products; Primary Metals; Computer & Electronic Products; Transportation Equipment; Machinery; and Chemical Products. Six industries reported no change in exports in April.

Imports†
ISM’s Imports Index registered 51.9 percent in April, cooling somewhat with a decrease of 1.1 percentage points compared to March’s reading of 53 percent. “Imports grew for the fourth consecutive month in April after contracting for 14 consecutive months. Companies continue to increase on-hand inventories, in line with an overall restocking of input materials. Ocean freight costs continue to rise as a result of the Red Sea turmoil and Suez Canal disruptions,” says Fiore.

The six industries reporting an increase in import volumes in April — listed in the following order — are: Wood Products; Paper Products; Fabricated Metal Products; Food, Beverage & Tobacco Products; Transportation Equipment; and Chemical Products. The five industries that reported lower volumes of imports in April are: Primary Metals; Furniture & Related Products; Plastics & Rubber Products; Computer & Electronic Products; and Machinery. Seven industries reported no change in imports in April compared to March.

†The Supplier Deliveries, Customers’ Inventories, Prices, Backlog of Orders, New Export Orders, and Imports indexes do not meet the accepted criteria for seasonal adjustments.

Buying Policy
The average commitment lead time for Capital Expenditures in April was 170 days, a decrease of six days compared to March. Average lead time in April for Production Materials was 79 days, an increase of one day. Average lead time for Maintenance, Repair and Operating (MRO) Supplies was 44 days, the same as in March.

Posted: May 3, 2024

Source: Institute for Supply Management

]]> https://www.textileworld.com/textile-world/2024/04/manufacturing-pmi-at-50-3-march-2024-manufacturing-ism-report-on-business/ Mon, 01 Apr 2024 16:52:17 +0000 https://www.textileworld.com/?p=94485 TEMPE, Ariz. — April 1, 2024 — Economic activity in the manufacturing sector expanded in March after contracting for 16 consecutive months, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®.

The report was issued today by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management® (ISM) Manufacturing Business Survey Committee:

“The Manufacturing PMI® registered 50.3 percent in March, up 2.5 percentage points from the 47.8 percent recorded in February. The overall economy continued in expansion for the 47th month after one month of contraction in April 2020. (A Manufacturing PMI above 42.5 percent, over a period of time, generally indicates an expansion of the overall economy.) The New Orders Index moved back into expansion territory at 51.4 percent, 2.2 percentage points higher than the 49.2 percent recorded in February. The March reading of the Production Index (54.6 percent) is 6.2 percentage points higher than February’s figure of 48.4 percent. The Prices Index registered 55.8 percent, up 3.3 percentage points compared to the reading of 52.5 percent in February. The Backlog of Orders Index registered 46.3 percent, the same reading as in February. The Employment Index registered 47.4 percent, up 1.5 percentage points from February’s figure of 45.9 percent.

“The Supplier Deliveries Index figure of 49.9 percent is 0.2 percentage point lower than the 50.1 percent recorded in February. (Supplier Deliveries is the only ISM Report On Business index that is inversed; a reading of above 50 percent indicates slower deliveries, which is typical as the economy improves and customer demand increases.) The Inventories Index increased 2.9 percentage points to 48.2 percent following a reading of 45.3 percent in February.

“The New Export Orders Index reading of 51.6 percent is the same reading as registered in February. The Imports Index continued in expansion territory, registering 53 percent, the same figure as in February. Both indexes repeated their highest readings since July 2022, when the New Export Orders Index registered 52.6 percent and the Imports Index registered 54.4 percent.”

Fiore continued: “The U.S. manufacturing sector moved into expansion for the first time since September 2022. Demand was positive, output strengthened and inputs remained accommodative. Demand improvement was reflected by the (1) New Orders Index back in expansion and fewer comments regarding ‘softening,’ (2) New Export Orders Index expanding again, supported by panelists’ stronger optimism (3) Backlog of Orders Index remaining in moderate contraction territory, the same as in February and (4) Customers’ Inventories Index contracting for the fourth consecutive month, remaining at a level accommodative for future production. Output (measured by the Production and Employment indexes) surged, with a combined 7.7-percentage point upward impact on the Manufacturing PMI calculation. Panelists’ companies notably increased their production levels month over month. Head-count reductions continued in March, with sizable layoff activity reported. Inputs — defined as supplier deliveries, inventories, prices and imports — continued to accommodate future demand growth and showed signs of stiffening. The Supplier Deliveries Index dropped marginally, moving into ‘faster’ territory, and the Inventories Index improved but remained in slight contraction territory. The Prices Index moved further upward in moderate expansion (or ‘increasing’) territory as commodity driven costs remain unstable.

“Of the six biggest manufacturing industries, four — Food, Beverage & Tobacco Products; Fabricated Metal Products; Chemical Products; and Transportation Equipment, which account for a combined 54 percent of manufacturing gross domestic product (GDP) — registered growth in March.

“Demand remains at the early stages of recovery, with clear signs of improving conditions. Production execution surged compared to January and February, as panelists’ companies reenter expansion. Suppliers continue to have capacity but are showing signs of struggling, due in large part to their raw material supply chains. Thirty percent of manufacturing GDP contracted in March, down from 40 percent in February. More importantly, the share of sector GDP registering a composite PMI calculation at or below 45 percent — a good barometer of overall manufacturing weakness — was 1 percent in March, the same as in February, but categorically healthier than the 27 percent recorded in January. Among the top six industries by contribution to manufacturing GDP in March, none had a PMI at or below 45 percent,” says Fiore.

The nine manufacturing industries reporting growth in March — in order — are: Textile Mills; Nonmetallic Mineral Products; Paper Products; Petroleum & Coal Products; Primary Metals; Food, Beverage & Tobacco Products; Fabricated Metal Products; Chemical Products; and Transportation Equipment. The six industries reporting contraction in March — in the following order — are: Furniture & Related Products; Plastics & Rubber Products; Electrical Equipment, Appliances & Components; Machinery; Computer & Electronic Products; and Miscellaneous Manufacturing.

What Respondents Are Saying

“Performance continues to defy projections of a downturn in activity. Demand remains strong, and the pipeline for orders is robust.” [Chemical Products]

“Expecting to see orders and production pick up for the second quarter. Suppliers are working with us to help drive costs down, which will help improve the margin for the rest of the year and deliver growth in 2025.” [Transportation Equipment]

“Commodity prices continue to hold steady.” [Food, Beverage & Tobacco Products]

“Demand remains soft, but optimism is high that orders are ‘just on the horizon.’ Expectations are for a strong second quarter. Supply chain issues are minimal, with only semiconductors and select electronic parts being an issue.” [Computer & Electronic Products]

“Noticing an increase in suppliers’ selectiveness regarding orders they quote and take. Additionally, there’s been a noticeable increase in manufacturing companies targeted for acquisition by larger entities (established companies, investment firms and the like).” [Machinery]

“Business is still strong — we are meeting and exceeding our forecasts. So far, we’re not hearing anything negative with our customers as far as ongoing business is concerned — it’s the same for raw material suppliers, nothing negative.” [Fabricated Metal Products]

“As an energy-intensive manufacturer, energy pricing continues to be a concern for our business. The move to electrification has increased demand, and supply is not stable because we’re not in an ideal geography for wind and solar power.” [Paper Products]

“The potential aftermaths of the presidential election are beginning to impact conversations and negotiations of long-term agreements/contracts.” [Petroleum & Coal Products]

“Continue to experience a softness in the industrial sector. There is optimism that order activity will increase in the late second quarter, leading to improvement in this segment for the second half of the year. The aerospace and defense market is continuing to ramp up, and demand is outpacing supply in our supply chain.” [Primary Metals]

“Business activity is up. Many manufacturers are anticipating better business in the second quarter and much better in the third quarter. They are reporting that second-quarter bookings are just starting to ramp up.” [Wood Products]

Manufacturing ISM® Report On Business® data is seasonally adjusted for the New Orders, Production, Employment and Inventories indexes.
*Number of months moving in current direction.

Commodities Reported Up/Down In Price And In Short Supply 

Commodities Up in Price
Aluminum* (4); Corrugated Boxes; Corrugated Sheets; Crude Oil; Gasoline; Hydraulic Components Maintenance, Repair, and Operations (MRO) Supplies (2); Ocean Freight (3); Plastic Resins (3); Polyethylene Resins; Polypropylene (6); Solvents; and Steel* (9).

Commodities Down in Price
Aluminum* (10); Copper; Natural Gas (4); Packaging Materials (4); Road Freight; Steel* (2); Steel — Hot Rolled (5); Steel — Scrap; and Steel Products (2).

Commodities in Short Supply
Electrical Components (42); Electrical Equipment (2); Hydraulic Components; Plastic Resins; and Semiconductors.

Note: The number of consecutive months the commodity is listed is indicated after each item.
*Indicates both up and down in price.

March 2024 Manufacturing Index Summaries 

Manufacturing PMI®
The U.S. manufacturing sector expanded in March, as the Manufacturing PMI registered 50.3 percent, up 2.5 percentage points compared to February’s reading of 47.8 percent. “This is first instance of expansion in 17 months. Two out of five subindexes that directly factor into the Manufacturing PMI are in expansion territory, up from one in February. The New Orders Index moved into expansion territory after one month of contraction. Of the six biggest manufacturing industries, four (Food, Beverage & Tobacco Products; Fabricated Metal Products; Chemical Products; and Transportation Equipment) registered growth in March,” says Fiore. A reading above 50 percent indicates that the manufacturing sector is generally expanding; below 50 percent indicates that it is generally contracting.

A Manufacturing PMI above 42.5 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the March Manufacturing PMI indicates the overall economy grew for the 47th straight month after one month of contraction (April 2020). “The past relationship between the Manufacturing PMI and the overall economy indicates that the March reading (50.3 percent) corresponds to a change of plus-2.2 percent in real gross domestic product (GDP) on an annualized basis,” says Fiore.

The Last 12 Months

New Orders
ISM’s New Orders Index expanded for just the third time in 22 months in March, registering 51.4 percent, an increase of 2.2 percentage points compared to February’s reading of 49.2 percent. The New Orders Index hasn’t indicated consistent growth since a 24-month streak of expansion ended in May 2022. “Of the six largest manufacturing sectors, four (Computer & Electronic Products; Fabricated Metal Products; Food, Beverage & Tobacco Products; and Chemical Products) reported increased new orders. Panelists’ comments reflected continuing improvement in demand, a trend that began in December 2023,” says Fiore. A New Orders Index above 52.3 percent, over time, is generally consistent with an increase in the Census Bureau’s series on manufacturing orders (in constant 2000 dollars).

The 12 manufacturing industries that reported growth in new orders in March — in the following order — are: Nonmetallic Mineral Products; Paper Products; Primary Metals; Printing & Related Support Activities; Wood Products; Petroleum & Coal Products; Plastics & Rubber Products; Computer & Electronic Products; Fabricated Metal Products; Food, Beverage & Tobacco Products; Chemical Products; and Miscellaneous Manufacturing. The two industries reporting a decline in new orders in March are: Furniture & Related Products; and Transportation Equipment.

Production
The Production Index surged back into expansion territory in March, registering 54.6 percent, 6.2 percentage points higher than the February reading of 48.4 percent. The Production Index had been in contraction for 11 of the previous 15 months. Of the six largest manufacturing sectors, five (Chemical Products; Fabricated Metal Products; Food, Beverage & Tobacco Products; Transportation Equipment; and Computer & Electronic Products) reported increased production. “Panelists’ companies improved output levels compared to February. The index posted its highest reading since June 2022, when it registered 54.7 percent,” says Fiore. An index above 52.2 percent, over time, is generally consistent with an increase in the Federal Reserve Board’s Industrial Production figures.

The 13 industries reporting growth in production during the month of March, in order, are: Paper Products; Printing & Related Support Activities; Nonmetallic Mineral Products; Petroleum & Coal Products; Chemical Products; Fabricated Metal Products; Food, Beverage & Tobacco Products; Transportation Equipment; Computer & Electronic Products; Miscellaneous Manufacturing; Primary Metals; Plastics & Rubber Products; and Electrical Equipment, Appliances & Components. The two industries reporting a decrease in production in March are: Furniture & Related Products; and Machinery.

Employment
ISM’s Employment Index registered 47.4 percent in March, 1.5 percentage points higher than the February reading of 45.9 percent. “The index indicated employment contracted for the sixth month in a row (but at a slower rate in March) after one month of expansion and three months of contraction before that. Of the six big manufacturing sectors, three (Transportation Equipment; Machinery; and Food, Beverage & Tobacco Products) expanded employment in March. Many Business Survey Committee respondents’ companies are continuing to reduce head counts through layoffs (which account for 76 percent of reduction activity, up from 50 percent in February), attrition and hiring freezes. Panelists’ comments in March were again equally split between companies adding and reducing head counts. This approximately 1-to-1 ratio has been consistent since October 2023,” says Fiore. An Employment Index above 50.3 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

Of 18 manufacturing industries, seven reported employment growth in March in the following order: Textile Mills; Petroleum & Coal Products; Miscellaneous Manufacturing; Primary Metals; Transportation Equipment; Machinery; and Food, Beverage & Tobacco Products. The eight industries reporting a decrease in employment in March, in the following order, are: Plastics & Rubber Products; Furniture & Related Products; Printing & Related Support Activities; Paper Products; Chemical Products; Electrical Equipment, Appliances & Components; Fabricated Metal Products; and Computer & Electronic Products.

Supplier Deliveries†
Delivery performance of suppliers to manufacturing organizations was marginally faster in March after one month of slowing preceded by 16 straight months in “faster” territory. The Supplier Deliveries Index, which registered 49.9 percent, was 0.2 percentage point lower than the 50.1 percent reported in February. After a reading of 52.4 percent in September 2022, the index went into contraction territory in October and had been there until January. “Panelists’ comments continue to indicate that supplier performance is improving; delivery promises are more stable as inputs transition to a more demand-driven environment. For the third month, supplier responsiveness appears to be ‘stiffer,’ meaning some suppliers are struggling to keep up,” says Fiore. A reading below 50 percent indicates faster deliveries, while a reading above 50 percent indicates slower deliveries.

The four manufacturing industries reporting slower supplier deliveries in March are: Textile Mills; Food, Beverage & Tobacco Products; Chemical Products; and Transportation Equipment. The five industries reporting faster supplier deliveries in March are: Electrical Equipment, Appliances & Components; Machinery; Miscellaneous Manufacturing; Computer & Electronic Products; and Primary Metals. Nine industries reported no change in delivery performance in March compared to February.

Inventories
The Inventories Index registered 48.2 percent in March, 2.9 percentage points higher than the 45.3 percent reported in February. “Manufacturing inventories contracted at a slower rate compared to the previous month. Of the six big industries, three (Fabricated Metal Products; Chemical Products; and Food, Beverage & Tobacco Products) increased manufacturing inventories in March. Panelists’ companies continue to indicate a willingness to invest in manufacturing inventory to improve on-time deliveries, gain precision in revenue projections and improve customer service,” says Fiore. An Inventories Index greater than 44.4 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).

Of 18 manufacturing industries, nine reported higher inventories in March, in the following order: Textile Mills; Nonmetallic Mineral Products; Paper Products; Petroleum & Coal Products; Fabricated Metal Products; Primary Metals; Electrical Equipment, Appliances & Components; Chemical Products; and Food, Beverage & Tobacco Products. The eight industries reporting lower inventories in March — in the following order — are: Wood Products; Printing & Related Support Activities; Furniture & Related Products; Plastics & Rubber Products; Computer & Electronic Products; Miscellaneous Manufacturing; Transportation Equipment; and Machinery.

Customers’ Inventories†
ISM’s Customers’ Inventories Index registered 44 percent in March, down 1.8 percentage points compared to the 45.8 percent reported in February. “Customers’ inventory levels decreased at a faster rate in March, with the index retreating a bit more into ‘too low’ territory. Panelists report their companies’ customers continue to have a shortage of their products in inventory, which is considered positive for future new orders and production,” says Fiore.

The two industries reporting customers’ inventories as too high in March are: Apparel, Leather & Allied Products; and Electrical Equipment, Appliances & Components. The nine industries reporting customers’ inventories as too low in March, in order, are: Primary Metals; Wood Products; Paper Products; Chemical Products; Machinery; Food, Beverage & Tobacco Products; Transportation Equipment; Miscellaneous Manufacturing; and Computer & Electronic Products. Seven industries reported no change in customers’ inventories in March compared to February.

Prices†
The ISM Prices Index registered 55.8 percent, 3.3 percentage points higher compared to the February reading of 52.5 percent, indicating raw materials prices increased in March for the third month in a row after eight consecutive months of decreases. Of the six largest manufacturing industries, four — Chemical Products; Food, Beverage & Tobacco Products; Computer & Electronic Products; and Machinery — reported price increases in March. “The Prices Index indicated moderate expansion in March, recording its highest level since July 2022 (60 percent). Commodity prices continue to be volatile, especially crude oil, aluminum and plastics. Twenty-four percent of companies reported higher prices, compared to 18 percent in February,” says Fiore. A Prices Index above 52.8 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Producer Price Index for Intermediate Materials.

In March, the 11 industries that reported paying increased prices for raw materials, in order, are: Apparel, Leather & Allied Products; Printing & Related Support Activities; Textile Mills; Plastics & Rubber Products; Chemical Products; Miscellaneous Manufacturing; Nonmetallic Mineral Products; Petroleum & Coal Products; Food, Beverage & Tobacco Products; Computer & Electronic Products; and Machinery. The four industries reporting paying decreased prices for raw materials in March are: Furniture & Related Products; Primary Metals; Transportation Equipment; and Fabricated Metal Products.

Backlog of Orders†
ISM’s Backlog of Orders Index registered 46.3 percent, the same figure as in February, indicating order backlogs contracted for the 18th consecutive month after a 27-month period of expansion. Of the six largest manufacturing industries, the only one reporting expanded order backlogs in March was Computer & Electronic Products, which was due in part to generally long lead times. “The index remained in contraction in March, as production rates and new order levels continue to not be conducive to expansion in backlogs,” says Fiore.

Of 18 manufacturing industries, the three that reported growth in order backlogs in March are: Wood Products; Primary Metals; and Computer & Electronic Products. The 12 industries reporting lower backlogs in March — in the following order — are: Furniture & Related Products; Petroleum & Coal Products; Machinery; Paper Products; Nonmetallic Mineral Products; Electrical Equipment, Appliances & Components; Fabricated Metal Products; Transportation Equipment; Miscellaneous Manufacturing; Plastics & Rubber Products; Chemical Products; and Food, Beverage & Tobacco Products.

New Export Orders†
ISM’s New Export Orders Index registered 51.6 percent in March, matching February’s reading and repeating the index’s highest figure since July 2022 (52.6 percent). “The New Export Orders Index reading indicates that export orders expanded in March for a second straight month after eight consecutive months of contraction. Panelists’ comments supported the continued improvement in demand from overseas customers,” says Fiore.

The eight industries reporting growth in new export orders in March — in the following order — are: Wood Products; Miscellaneous Manufacturing; Plastics & Rubber Products; Transportation Equipment; Fabricated Metal Products; Chemical Products; Food, Beverage & Tobacco Products; and Machinery. The four industries reporting a decrease in new export orders in March are: Paper Products; Furniture & Related Products; Electrical Equipment, Appliances & Components; and Computer & Electronic Products.

Imports†
ISM’s Imports Index registered 53 percent in March, the same figure as in February, which keeps it at its highest level since a reading of 54.4 percent in July 2022. “Imports grew for the third consecutive month in March after contracting for 14 consecutive months. The month-over-month increases in import activity have been due to Lunar New Year pre-shipments and companies’ desire to increase on-hand inventories. Ocean freight costs continue to rise as a result of trans-Suez disruptions,” says Fiore.

The seven industries reporting an increase in import volumes in March — listed in the following order — are: Paper Products; Fabricated Metal Products; Food, Beverage & Tobacco Products; Chemical Products; Computer & Electronic Products; Transportation Equipment; and Machinery. The two industries that reported lower volumes of imports in March are: Furniture & Related Products; and Electrical Equipment, Appliances & Components. Nine industries reported no change in imports in March compared to February.

†The Supplier Deliveries, Customers’ Inventories, Prices, Backlog of Orders, New Export Orders, and Imports indexes do not meet the accepted criteria for seasonal adjustments.

Buying Policy
The average commitment lead time for Capital Expenditures in March was 176 days, a decrease of one day compared to February. Average lead time in March for Production Materials was 78 days, a decrease of two days. Average lead time for Maintenance, Repair and Operating (MRO) Supplies was 44 days, an increase of one day compared to February.

Posted: April 1, 2024

Source: Institute for Supply Management®(ISM®)

The report was issued today by Timothy R. Fiore, CPSM, C.P.M., chair of the Institute for Supply Management® (ISM) Manufacturing Business Survey Committee:

“The Manufacturing PMI registered 47.8 percent in February, down 1.3 percentage points from the 49.1 percent recorded in January. The overall economy continued in expansion for the 46th month after one month of contraction in April 2020. (A Manufacturing PMI above 42.5 percent, over a period of time, generally indicates an expansion of the overall economy.) The New Orders Index moved back into contraction territory at 49.2 percent, 3.3 percentage points lower than the 52.5 percent recorded in January. The February reading of the Production Index (48.4 percent) is 2 percentage points lower than January’s figure of 50.4 percent. The Prices Index registered 52.5 percent, down 0.4 percentage point compared to the reading of 52.9 percent in January. The Backlog of Orders Index registered 46.3 percent, 1.6 percentage points higher than the 44.7 percent recorded in January. The Employment Index registered 45.9 percent, down 1.2 percentage points from January’s figure of 47.1 percent.

“The Supplier Deliveries Index figure of 50.1 percent is 1 percentage point higher than the 49.1 percent recorded in January. (Supplier Deliveries is the only ISM® Report On Business® index that is inversed; a reading of above 50 percent indicates slower deliveries, which is typical as the economy improves and customer demand increases.) The Inventories Index decreased 0.9 percentage point to 45.3 percent from January’s reading of 46.2 percent.

“The New Export Orders Index reading of 51.6 percent is 6.4 percentage points higher than January’s figure of 45.2 percent. The Imports Index continued in expansion territory, registering 53 percent, 2.9 percentage points higher than the 50.1 percent reported in January. Both indexes reported their highest readings since July 2022, when the New Export Orders Index registered 52.6 percent and the Imports Index 54.4 percent.”

Fiore continues, “The U.S. manufacturing sector continued to contract (and at a faster rate compared to January), with demand slowing, output easing and inputs remaining accommodative. Demand moderated, with the (1) New Orders Index back in contraction as seasonal headwinds were too strong to overcome, (2) New Export Orders Index returned to expansion and (3) Backlog of Orders Index improving but still in moderate contraction territory. The Customers’ Inventories Index contracted for the third consecutive month, remaining accommodative for future production. Output (measured by the Production and Employment indexes) dropped, with a combined 3.2-percentage point downward impact on the Manufacturing PMI® calculation. Panelists’ companies maintained their production levels month over month, but that growth could not outpace seasonal factors. Head-count reductions continued in February, with notable layoff activity noted. Inputs — defined as supplier deliveries, inventories, prices and imports — continued to accommodate future demand growth but again showed signs of stiffening. The Supplier Deliveries Index improved again, moving into ‘slower’ territory, and the Inventories Index slid back due to inability for growth consistent with seasonal factors, remaining in moderate contraction territory. The Prices Index remained in moderate expansion (or ‘increasing’) territory as commodity driven costs continue to oscillate.

“Of the six biggest manufacturing industries, three (Fabricated Metal Products; Chemical Products; and Transportation Equipment) registered growth in February. The first two are “foundational” industries, meaning those that provide products and components for other manufacturing industries.

“Demand is at the early stages of recovery, and production execution is relatively stable compared to January, as panelists’ companies begin to prepare for expansion. Suppliers continue to have capacity but are showing signs of struggling, due in part to their raw material supply chains. Forty percent of manufacturing gross domestic product (GDP) contracted in February, down from 62 percent in January. More importantly, the share of sector GDP registering a composite PMI® calculation at or below 45 percent — a good barometer of overall manufacturing weakness — was 1 percent in February, compared to 27 percent in January and 48 percent in December. Among the top six industries by contribution to manufacturing GDP in February, none had a PMI at or below 45 percent, compared to two in the previous month,” says Fiore.

The eight manufacturing industries reporting growth in February — in order — are: Apparel, Leather & Allied Products; Nonmetallic Mineral Products; Primary Metals; Plastics & Rubber Products; Fabricated Metal Products; Chemical Products; Miscellaneous Manufacturing; and Transportation Equipment. The seven industries reporting contraction in February — in the following order — are: Furniture & Related Products; Machinery; Wood Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Paper Products; and Electrical Equipment, Appliances & Components.

What Respondents Are Saying

“Currently seeing increasing sales in our business. Most delivery dates are in the second quarter of 2024.” [Chemical Products]

“The first quarter will be slower due to some customer order changes, but we are expecting the rest of 2024 to be strong. We may increase our growth projections.” [Transportation Equipment]

“Typical first quarter volume drops from fourth quarter high volumes. Additional distribution has allowed us to maintain consistent production shifts.” [Food, Beverage & Tobacco Products]

“Customer softness continues in China, Japan and Europe.” [Computer & Electronic Products]

“Demand has finally picked up, with customer orders more closely resembling typical January and February levels. January was up 22 percent compared to December; February up 26 percent compared to January.” [Machinery]

“Customer orders are steady, neither up nor down compared to last month. This steady state is what we budgeted and forecast. We are forecasting business to increase 2 percent to 4 percent over the next couple of months.” [Fabricated Metal Products]

“Business outlook overall is stable. Working through customer backlog with some raw material lead times improving.” [Miscellaneous Manufacturing]

“We reflected on 2023 for maybe a minute and turned the page forward to 2024. Weather in January caused several operations to be idle, and shipments were affected.” [Nonmetallic Mineral Products]

“The month seems to be getting stronger with each passing day and week. Lots of market volatility —pricing flat to downward. It will be interesting to see how the last days of the month play out, as indications seem to be all over the place.” [Primary Metals]

“We are experiencing increased sales, which is putting pressure on the plant and assembly to meet new customer demand.” [Electrical Equipment, Appliances & Components]

Manufacturing ISM® Report On Business® data is seasonally adjusted for the New Orders, Production, Employment and Inventories indexes.
*Number of months moving in current direction.

Commodities Reported Up/Down In Price And In Short Supply

Commodities Up in Price
Aluminum* (3); Electrical Components; Maintenance, Repair, and Operations (MRO) Supplies; Ocean Freight (2); Plastic Resins (2); Polyethylene; Polypropylene (5); Steel (8); Steel — Carbon (2); Steel — Hot Rolled (4); and Steel Products (3).

Commodities Down in Price
Aluminum* (9); Corrugated Boxes (7); Natural Gas (3); Packaging Materials (3); Pallets; Steel; and Steel Products.

Commodities in Short Supply
Coatings and Adhesives; Electrical Equipment; Electrical Components (41); Electronic Assemblies; and Electronic Components (39).

Note: The number of consecutive months the commodity is listed is indicated after each item.
*Indicates both up and down in price.

February 2024 Manufacturing Index Summaries

Manufacturing PMI®
The U.S. manufacturing sector contracted in February, as the Manufacturing PMI registered 47.8 percent, down 1.3 percentage points compared to January’s reading of 49.1 percent. “This is the 16th consecutive month of contraction. Four out of five subindexes that directly factor into the Manufacturing PMI are in contraction territory, up from three in January. The New Orders Index dropped back into contraction territory after one month in expansion. Of the six biggest manufacturing industries, three (Fabricated Metal Products; Chemical Products; and Transportation Equipment) registered growth in February,” says Fiore. A reading above 50 percent indicates that the manufacturing sector is generally expanding; below 50 percent indicates that it is generally contracting.

A Manufacturing PMI above 42.5 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the February Manufacturing PMI indicates the overall economy grew for the 46th straight month after one month of contraction (April 2020). “The past relationship between the Manufacturing PMI and the overall economy indicates that the February reading (47.8 percent) corresponds to a change of plus-1.5 percent in real gross domestic product (GDP) on an annualized basis,” says Fiore.

The Last 12 Months

New Orders
ISM’s New Orders Index contracted for the 18th time in 20 months in February, registering 49.2 percent, a decrease of 3.3 percentage points compared to January’s reading of 52.5 percent. The New Orders Index contracted in July 2022, registered 50.1 percent in August 2022 and had been in contraction until January. “Of the six largest manufacturing sectors, four (Fabricated Metal Products; Chemical Products; Transportation Equipment; and Computer & Electronic Products) reported increased new orders. Panelists’ comments reflected sentiment about improving demand, a trend that began in December 2023. Indications of order softness were at the lowest level since April 2023,” says Fiore. A New Orders Index above 52.3 percent, over time, is generally consistent with an increase in the Census Bureau’s series on manufacturing orders (in constant 2000 dollars).

The 11 manufacturing industries that reported growth in new orders in February — in the following order — are: Apparel, Leather & Allied Products; Paper Products; Plastics & Rubber Products; Wood Products; Fabricated Metal Products; Chemical Products; Primary Metals; Transportation Equipment; Electrical Equipment, Appliances & Components; Miscellaneous Manufacturing; and Computer & Electronic Products. The four industries reporting a decline in new orders in February are: Furniture & Related Products; Textile Mills; Food, Beverage & Tobacco Products; and Machinery.

Production
The Production Index moved back into contraction territory in February, registering 48.4 percent, 2 percentage points lower than the January reading of 50.4 percent. The Production Index has been in contraction in 11 of the last 15 months. Of the six largest manufacturing sectors, two (Fabricated Metal Products; and Chemical Products) reported increased production. More importantly, both of those industries are “foundational,” providing products across the manufacturing sector. “Panelists’ companies essentially maintained output levels from January, but due to seasonality adjustments, expansion wasn’t fast enough to avoid a subindex reading in contraction territory. Overall, production rates have been essentially stable since July 2023, with slight month-over-month declines consistent with reductions in demand and backlog,” says Fiore. An index above 52.2 percent, over time, is generally consistent with an increase in the Federal Reserve Board’s Industrial Production figures.

The seven industries reporting growth in production during the month of February, in order, are: Paper Products; Nonmetallic Mineral Products; Plastics & Rubber Products; Miscellaneous Manufacturing; Primary Metals; Fabricated Metal Products; and Chemical Products. The five industries reporting a decrease in production in February are: Wood Products; Furniture & Related Products; Machinery; Electrical Equipment, Appliances & Components; and Food, Beverage & Tobacco Products. Six industries reported no change in production in February compared to January.

Employment
ISM’s Employment Index registered 45.9 percent in February, 1.2 percentage points lower than the January reading of 47.1 percent. “The index indicated employment contracted for the fifth month in a row (and at a faster rate in February) after one month of expansion and three months of contraction before that. Of the six big manufacturing sectors, only Transportation Equipment expanded employment in February. Many Business Survey Committee respondents’ companies are continuing to reduce head counts using layoffs (which account for 50 percent of reduction activity), attrition and hiring freezes. Panelists’ comments in February were equally split between their companies adding and reducing head counts. This approximately 1-to-1 ratio has been consistent since October 2023,” says Fiore. An Employment Index above 50.3 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

Of 18 manufacturing industries, four reported employment growth in February: Nonmetallic Mineral Products; Electrical Equipment, Appliances & Components; Primary Metals; and Transportation Equipment. The 10 industries reporting a decrease in employment in February, in the following order, are: Plastics & Rubber Products; Paper Products; Wood Products; Computer & Electronic Products; Furniture & Related Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; Machinery; Fabricated Metal Products; and Chemical Products.

Supplier Deliveries†
Delivery performance of suppliers to manufacturing organizations was slower in February after 16 straight months in “faster” territory for the Supplier Deliveries Index, which registered 50.1 percent, 1 percentage point higher than the 49.1 percent reported in January. After a reading of 52.4 percent in September 2022, the index went into contraction territory in October and had been there until February. “Panelists’ comments continue to indicate that suppliers’ performance is improving; delivery promises appear to be more stable as inputs transition to a more demand-driven environment. For the second month, supplier responsiveness appears to be ‘stiffer,’ meaning some suppliers are struggling to keep up,” says Fiore. A reading below 50 percent indicates faster deliveries, while a reading above 50 percent indicates slower deliveries.

The four manufacturing industries reporting slower supplier deliveries in February are: Plastics & Rubber Products; Chemical Products; Electrical Equipment, Appliances & Components; and Transportation Equipment. The five industries reporting faster supplier deliveries in February are: Paper Products; Machinery; Food, Beverage & Tobacco Products; Fabricated Metal Products; and Computer & Electronic Products. Nine industries reported no change in delivery performance in February compared to January.

Inventories
The Inventories Index registered 45.3 percent in February, 0.9 percentage point lower than the 46.2 percent reported in January. “Manufacturing inventories contracted at a slightly faster rate compared to the previous month. Of the six big industries, two (Food, Beverage & Tobacco Products; and Fabricated Metal Products) increased manufacturing inventories in February. Overall, panelists’ companies are indicating a willingness to invest in manufacturing inventory to improve on-time deliveries, gain precision in revenue projections and improve customer satisfaction. Something to watch in the coming months: Supply chains catching up to growing demand is a scenario that typically results in manufacturing inventories expanding,” says Fiore. An Inventories Index greater than 44.4 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).

Of 18 manufacturing industries, six reported higher inventories in February, in the following order: Textile Mills; Nonmetallic Mineral Products; Miscellaneous Manufacturing; Primary Metals; Food, Beverage & Tobacco Products; and Fabricated Metal Products. The seven industries reporting lower inventories in February — in the following order — are: Electrical Equipment, Appliances & Components; Paper Products; Chemical Products; Computer & Electronic Products; Plastics & Rubber Products; Transportation Equipment; and Machinery.

Customers’ Inventories†
ISM’s Customers’ Inventories Index registered 45.8 percent in February, up 2.1 percentage points compared to the 43.7 percent reported in January. “Customers’ inventory levels decreased at a slower rate in February, with the index moving up but still in ‘too low’ territory. Panelists report their companies’ customers continue to have a shortage of their products in inventory, which is considered positive for future new orders and production,” says Fiore.

The three industries reporting customers’ inventories as too high in February are: Computer & Electronic Products; Food, Beverage & Tobacco Products; and Plastics & Rubber Products. The nine industries reporting customers’ inventories as too low in February, in order, are: Paper Products; Wood Products; Chemical Products; Primary Metals; Machinery; Fabricated Metal Products; Transportation Equipment; Electrical Equipment, Appliances & Components; and Miscellaneous Manufacturing.

Prices†
The ISM Prices Index registered 52.5 percent, 0.4 percentage point lower compared to the January reading of 52.9 percent, indicating raw materials prices increased in February for the second month in a row after eight consecutive months of decreases. Of the six largest manufacturing industries, three — Transportation Equipment; Chemical Products; and Computer & Electronic Products — reported price increases in February. “The Prices Index indicated moderate expansion in the second month of 2024 as new pricing agreements are implemented at panelists’ companies and commodity prices continue to be volatile. Steel, plastics, cement and aluminum all contributed to price growth in February. Eighteen percent of companies reported higher prices, compared to 20 percent in January,” says Fiore. A Prices Index above 52.8 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Producer Price Index for Intermediate Materials.

In February, the 11 industries that reported paying increased prices for raw materials, in order, are: Textile Mills; Printing & Related Support Activities; Plastics & Rubber Products; Miscellaneous Manufacturing; Furniture & Related Products; Paper Products; Nonmetallic Mineral Products; Transportation Equipment; Chemical Products; Computer & Electronic Products; and Electrical Equipment, Appliances & Components. The four industries reporting paying decreased prices for raw materials in February are: Primary Metals; Petroleum & Coal Products; Machinery; and Fabricated Metal Products.

Backlog of Orders†
ISM’s Backlog of Orders Index registered 46.3 percent, a 1.6-percentage point increase compared to January’s reading of 44.7 percent, indicating order backlogs contracted for the 17th consecutive month after a 27-month period of expansion. Of the six largest manufacturing industries, only Fabricated Metal Products expanded order backlogs in February. “The index remains in contraction, though at a slightly slower rate in February, as production rates and new order levels continue to have a negative effect on backlogs,” says Fiore.

Of 18 manufacturing industries, the five that reported growth in order backlogs in February are: Plastics & Rubber Products; Paper Products; Primary Metals; Electrical Equipment, Appliances & Components; and Fabricated Metal Products. The eight industries reporting lower backlogs in February — in the following order — are: Textile Mills; Furniture & Related Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Machinery; Miscellaneous Manufacturing; Transportation Equipment; and Chemical Products.

New Export Orders†
ISM’s New Export Orders Index registered 51.6 percent in February, 6.4 percentage points higher than the January reading of 45.2 percent. This is the index’s highest reading since July 2022 (52.6 percent). “The New Export Orders Index reading indicates that export orders expanded in February after eight consecutive months of contraction. Panelists’ comments supported improvement in order activity from China and the European region,” says Fiore.

The six industries reporting growth in new export orders in February — in the following order — are: Wood Products; Nonmetallic Mineral Products; Fabricated Metal Products; Transportation Equipment; Food, Beverage & Tobacco Products; and Machinery. The six industries reporting a decrease in new export orders in February — in the following order — are: Textile Mills; Paper Products; Plastics & Rubber Products; Miscellaneous Manufacturing; Electrical Equipment, Appliances & Components; and Chemical Products.

Imports†
ISM’s Imports Index registered 53 percent in February, an increase of 2.9 percentage points compared to January’s figure of 50.1 percent and its highest level since a reading of 54.4 percent in July 2022. “Imports grew for the second consecutive month in February after contracting for 14 consecutive months. Lunar New Year pre-shipments contributed to the month-over-month increase in import activity. Panelists continued to note rising ocean freight costs and extended trans-Suez lead times as a result of Red Sea disruptions,” says Fiore.

The nine industries reporting an increase in import volumes in February — listed in the following order — are: Wood Products; Printing & Related Support Activities; Transportation Equipment; Chemical Products; Fabricated Metal Products; Miscellaneous Manufacturing; Machinery; Computer & Electronic Products; and Food, Beverage & Tobacco Products. The five industries that reported lower volumes of imports in February are: Nonmetallic Mineral Products; Furniture & Related Products; Primary Metals; Electrical Equipment, Appliances & Components; and Plastics & Rubber Products.

†The Supplier Deliveries, Customers’ Inventories, Prices, Backlog of Orders, New Export Orders, and Imports indexes do not meet the accepted criteria for seasonal adjustments.

Buying Policy
The average commitment lead time for Capital Expenditures in February was 177 days, an increase of five days compared to January. Average lead time in February for Production Materials was 80 days, a decrease of three days. Average lead time for Maintenance, Repair and Operating (MRO) Supplies was 43 days, the same figure reported in January.

Posted: March 2, 2024

Source: Institute for Supply Management

The report was issued today by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee:

“The Manufacturing PMI registered 49.1 percent in January, up 2 percentage points from the seasonally adjusted 47.1 percent recorded in December. The overall economy continued in expansion for the 45th month after one month of contraction in April 2020. (A Manufacturing PMI above 42.5 percent, over a period of time, generally indicates an expansion of the overall economy.) The New Orders Index moved into expansion territory at 52.5 percent, 5.5 percentage points higher than the seasonally adjusted figure of 47 percent recorded in December. The January reading of the Production Index (50.4 percent) is 0.5 percentage point higher than December’s seasonally adjusted figure of 49.9 percent. The Prices Index registered 52.9 percent, up 7.7 percentage points compared to the reading of 45.2 percent in December. The Backlog of Orders Index registered 44.7 percent, 0.6 percentage point lower than the 45.3 percent recorded in December. The Employment Index registered 47.1 percent, down 0.4 percentage point from December’s seasonally adjusted figure of 47.5 percent.

“The Supplier Deliveries Index figure of 49.1 percent is 2.1 percentage points higher than the 47 percent recorded in December. (Supplier Deliveries is the only ISM Report On Business® index that is inversed; a reading of above 50 percent indicates slower deliveries, which is typical as the economy improves and customer demand increases.)

“The Inventories Index increased 2.3 percentage points to 46.2 percent from December’s seasonally adjusted reading of 43.9 percent. The New Export Orders Index reading of 45.2 percent is 4.7 percentage points lower than December’s figure of 49.9 percent. The Imports Index moved into expansion territory, registering 50.1 percent, 3.7 percentage points higher than the 46.4 percent reported in December.”

Fiore continues, “The U.S. manufacturing sector continued to contract, though at a marginal rate compared to December. Demand improved, output remained stable and inputs are accommodative. Demand moderated, with the (1) New Orders Index expanding at a respectable rate, (2) New Export Orders Index in a headwind and (3) Backlog of Orders Index remaining above 40 percent but still in fairly strong contraction territory at 44.7 percent. Also, the Customers’ Inventories Index contracted further, becoming more accommodative for future production. On balance, Output (measured by the Production and Employment indexes) expanded slightly, with a combined 0.1-percentage point upward impact on the Manufacturing PMI® calculation. Panelists’ companies maintained production levels month over month and continued head count reductions in January, with significant layoff activity. Inputs — defined as supplier deliveries, inventories, prices and imports — continued to accommodate future demand growth but are showing signs of stiffening. The Supplier Deliveries Index indicated faster deliveries for the 16th straight month, and the Inventories Index moved upward while remaining in moderate contraction territory. The Prices Index climbed into expansion (or ‘increasing’) territory as new pricing levels for 2024 went into effect.

“Two of the six biggest manufacturing industries (Transportation Equipment; and Chemical Products) registered growth in January.

“Demand remains soft but shows signs of improvement, and production execution is stable compared to December, as panelists’ companies continue to manage outputs, material inputs and labor costs. Suppliers continue to have capacity. Sixty-two percent of manufacturing gross domestic product (GDP) contracted in January, down from 84 percent in December. More importantly, the share of sector GDP registering a composite PMI® calculation at or below 45 percent — a good barometer of overall manufacturing weakness — was 27 percent in January, compared to 48 percent in December, and 54 percent in November. Among the top six industries by contribution to manufacturing GDP in January, two (Machinery; and Computer & Electronic Products) had a PMI at or below 45 percent, one fewer than in the previous month,” Fiore said.

The four manufacturing industries reporting growth in January are: Apparel, Leather & Allied Products; Textile Mills; Transportation Equipment; and Chemical Products. The 13 industries reporting contraction in January — in the following order — are: Wood Products; Machinery; Plastics & Rubber Products; Nonmetallic Mineral Products; Furniture & Related Products; Computer & Electronic Products; Fabricated Metal Products; Petroleum & Coal Products; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; Paper Products; Miscellaneous Manufacturing; and Primary Metals.

What Respondents Are Saying

“The start of 2024 looks good. Sales are above expectations, and costs are mostly stable. A few commodities are up in cost due to supply shortages. Many previously short commodities market positions have corrected themselves. There is a real short-term increase in the cost of international freight.” [Chemical Products]

“The commercial vehicle market appears to be retracting a bit in 2024 compared to last year. Forecast sales have decreased slightly in most product segments, with only limited growth related to customers’ competitive sourcing and moves to new technology. Most supply chains, including for semiconductors, have stabilized, with the only major escalation now being transit through the Red Sea.” [Transportation Equipment]

“Business continues to stabilize. Cash flow will be tight in 2024.” [Food, Beverage & Tobacco Products]

“U.S. economic outlook is affecting customer orders, and the current backlog is quite low compared to past quarters. Waiting on potential improvements from the CHIPS and Science Act.” [Computer & Electronic Products]

“December sales were very strong but slower for the first part of January, as was expected. We expect to see steady sales going forward, if the (U.S. Federal Reserve) continues to hold rates and suggests a rate cut in the future.” [Machinery]

“Good start to the year. We had budgeted a 3.5-percent increase over 2023. We expect it to be a challenging year. Currently, orders are positive in our automotive OEM and automotive aftermarket business. Our industrial business sector is looking weak at the moment. Still expect to achieve budget forecasts through the first quarter. (We) feel January is running high for automotive because at the end of December, many OEMs cancelled the last few weeks of orders to reduce inventory levels.” [Fabricated Metal Products]

“Order backlog, which was at historically high levels, is diminishing due to supply chain improvements and slight slowdown of orders.” [Miscellaneous Manufacturing]

“Demand continues to be slow. Reduction from the second half of 2023 has continued into this year. We are adjusting production to match demand.” [Electrical Equipment, Appliances & Components]

“Current industry conditions are positive; however, a note of caution as we see potential headwinds with downward price movements in the coming months.” [Primary Metals]

“Remarkable slowdown in business in December. January has picked up, but not to previous-year levels.” [Textile Mills]

Manufacturing ISM® Report On Business® data is seasonally adjusted for the New Orders, Production, Employment and Inventories indexes.
*Number of months moving in current direction.
Indexes reflect newly released seasonal adjustment factors.

Commodities Reported Up/Down In Price And In Short Supply

Commodities Up in Price
Aluminum* (2); Labor — Temporary (5); Ocean Freight; Plastic Resins; Polypropylene (4); Steel (7); Steel — Carbon; Steel — Hot Rolled (3); Steel Products (2); and Steel Wire.

Commodities Down in Price
Aluminum* (8); Corrugated Boxes (6); Diesel (3); Natural Gas (2); Packaging Materials (2); and Steel — Stainless.

Commodities in Short Supply
Electrical Components (40); Electronic Components (38); and Steel — Alloy.

Note: The number of consecutive months the commodity is listed is indicated after each item.
*Indicates both up and down in price.

January 2024 Manufacturing Index Summaries

Manufacturing PMI®
The U.S. manufacturing sector contracted in January, as the Manufacturing PMI registered 49.1 percent in January, up 2 percentage points compared to December’s seasonally adjusted reading of 47.1 percent. This is the highest reading since October 2022, when the PMI registered a seasonally adjusted 50 percent. “This is the 15th month of contraction. Three out of five subindexes that directly factor into the Manufacturing PMI are in contraction territory, down from four in December. The New Orders Index broke its 16-month streak in contraction territory by indicating expansion in January. Of the six biggest manufacturing industries, two (Transportation Equipment; and Chemical Products) registered growth in January,” Fiore said. A reading above 50 percent indicates that the manufacturing sector is generally expanding; below 50 percent indicates that it is generally contracting.

A Manufacturing PMI above 42.5 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the January Manufacturing PMI indicates the overall economy grew for the 45th straight month after one month of contraction (April 2020). “The past relationship between the Manufacturing PMI and the overall economy indicates that the January reading (49.1 percent) corresponds to a change of plus-1.9 percent in real gross domestic product (GDP) on an annualized basis,” Fiore said.

The Last 12 Months

New Orders
ISM’s New Orders Index expanded for just the second time in 20 months in January, registering 52.5 percent, an increase of 5.5 percentage points compared to December’s seasonally adjusted reading of 47 percent. The New Orders Index contracted in July 2022, registered a seasonally adjusted 50.1 percent in August 2022 and had been in contraction since September 2022. “Of the six largest manufacturing sectors, three (Chemical Products; Transportation Equipment; and Fabricated Metal Products) reported increased new orders. The index in January recorded its best performance since May 2022 (55.3 percent),” Fiore said. A New Orders Index above 52.3 percent, over time, is generally consistent with an increase in the Census Bureau’s series on manufacturing orders (in constant 2000 dollars).

The five manufacturing industries that reported growth in new orders in January are: Apparel, Leather & Allied Products; Primary Metals; Chemical Products; Transportation Equipment; and Fabricated Metal Products. The 10 industries reporting a decline in new orders in January, in order, are: Wood Products; Nonmetallic Mineral Products; Furniture & Related Products; Machinery; Plastics & Rubber Products; Petroleum & Coal Products; Electrical Equipment, Appliances & Components; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; and Computer & Electronic Products.

Production
The Production Index moved back into expansion territory in January, registering 50.4 percent, 0.5 percentage point higher than the seasonally adjusted December reading of 49.9 percent. The Production Index has been in contraction in 10 of the last 14 months; in addition to this month, the index registered 50 percent or better in May, September and October 2023. “Panelists’ companies essentially maintained the levels of output from December and November and now have an opportunity to increase production, based on the ‘too low’ reading for the Customers’ Inventories Index,” says Fiore. An index above 52.2 percent, over time, is generally consistent with an increase in the Federal Reserve Board’s Industrial Production figures.

The four industries reporting growth in production during the month of January are: Apparel, Leather & Allied Products; Paper Products; Primary Metals; and Transportation Equipment. The 11 industries reporting a decrease in production in January — in the following order — are: Wood Products; Petroleum & Coal Products; Nonmetallic Mineral Products; Textile Mills; Plastics & Rubber Products; Machinery; Furniture & Related Products; Fabricated Metal Products; Computer & Electronic Products; Electrical Equipment, Appliances & Components; and Food, Beverage & Tobacco Products.

Employment
ISM®’s Employment Index registered 47.1 percent in January, 0.4 percentage point lower than the seasonally adjusted December reading of 47.5 percent. “The index indicated employment contracted for the fourth month in a row (and at a faster rate in January) after one month of expansion and three months of contraction before that. Of the six big manufacturing sectors, only Transportation Equipment expanded. Labor management sentiment at Business Survey Committee respondents’ companies still indicates a slowdown in hiring and, in January, a continuation of staff-reduction activity. Attrition, freezes and layoffs were used to reduce head counts. Quits rates remained at 12-month lows. The majority of panelists’ comments indicated labor force reductions; in the previous two months, they were equally split between companies hiring and others reducing their labor forces,” says Fiore. An Employment Index above 50.3 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

Of 18 manufacturing industries, three reported employment growth in January: Nonmetallic Mineral Products; Petroleum & Coal Products; and Transportation Equipment. The nine industries reporting a decrease in employment in January, in the following order, are: Paper Products; Plastics & Rubber Products; Primary Metals; Fabricated Metal Products; Machinery; Food, Beverage & Tobacco Products; Chemical Products; Computer & Electronic Products; and Miscellaneous Manufacturing. Six industries reported no change in employment in January compared to December.

Supplier Deliveries†
Delivery performance of suppliers to manufacturing organizations was faster for the 16th straight month in January, as the Supplier Deliveries Index registered 49.1 percent, 2.1 percentage points higher than the 47 percent reported in December. After a reading of 52.4 percent in September 2022, the index went into contraction territory in October and has been there since, with an average reading of 46.2 percent over the last 12 months, up from a rolling 12-month average of 46 percent in December. “Panelists’ comments continue to indicate that suppliers’ performance is improving, but for most industries, delivery promises appear to be stable as inputs transition to a more demand-driven environment,” says Fiore. A reading below 50 percent indicates faster deliveries, while a reading above 50 percent indicates slower deliveries.

The five manufacturing industries reporting slower supplier deliveries in January are: Textile Mills; Paper Products; Plastics & Rubber Products; Miscellaneous Manufacturing; and Food, Beverage & Tobacco Products. The five industries reporting faster supplier deliveries in January are: Computer & Electronic Products; Transportation Equipment; Fabricated Metal Products; Machinery; and Chemical Products. Seven industries reported no change in delivery performance in January compared to December.

Inventories
The Inventories Index registered 46.2 percent in January, 2.3 percentage points higher than the seasonally adjusted 43.9 percent reported in December. “Manufacturing inventories contracted at a slower rate compared to the previous month. Of the six big industries, only Transportation Equipment increased manufacturing inventories in January. Overall, panelists’ companies continue to closely watch manufacturing inventory levels but showed signs, as the year began, of a willingness to invest in manufacturing inventory in order to improve on-time deliveries, gain precision in revenue projections and improve overall customer satisfaction,” says Fiore. An Inventories Index greater than 44.4 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).

Of 18 manufacturing industries, three reported higher inventories in January: Apparel, Leather & Allied Products; Printing & Related Support Activities; and Transportation Equipment. The nine industries reporting lower inventories in January — in the following order — are: Paper Products; Computer & Electronic Products; Plastics & Rubber Products; Machinery; Electrical Equipment, Appliances & Components; Primary Metals; Food, Beverage & Tobacco Products; Fabricated Metal Products; and Chemical Products. Six industries reported no change in raw materials inventories in January compared to December.

Customers’ Inventories†
ISM®’s Customers’ Inventories Index registered 43.7 percent in January, down 4.4 percentage points compared to the 48.1 percent reported in December. “Customers’ inventory levels sagged, moving into the ‘too low’ region, as panelists report their companies’ customers have a significant shortage of their products in inventory, which is considered positive for future new orders and production. The index registered its lowest level since October 2022, when it recorded 41.6 percent,” says Fiore.

The two industries reporting customers’ inventories as too high in January are: Fabricated Metal Products; and Plastics & Rubber Products. The 11 industries reporting customers’ inventories as too low in January, in order, are: Nonmetallic Mineral Products; Paper Products; Primary Metals; Electrical Equipment, Appliances & Components; Wood Products; Furniture & Related Products; Machinery; Miscellaneous Manufacturing; Chemical Products; Transportation Equipment; and Food, Beverage & Tobacco Products.

Prices†
The ISM® Prices Index registered 52.9 percent, 7.7 percentage points higher compared to the December reading of 45.2 percent, indicating raw materials prices increased in January after eight consecutive months of decreases. Of the six largest manufacturing industries, three — Fabricated Metal Products; Transportation Equipment; and Machinery — reported price increases in January. “The Prices Index indicated expansion in the first month of 2024 as new pricing agreements get implemented at panelists’ companies. The index reached its highest level since April 2023 (53.2 percent). Twenty percent of companies reported higher prices, compared to 14 percent in December,” says Fiore. A Prices Index above 52.8 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Producer Price Index for Intermediate Materials.

In January, the 10 industries that reported paying increased prices for raw materials, in order, are: Printing & Related Support Activities; Textile Mills; Fabricated Metal Products; Furniture & Related Products; Nonmetallic Mineral Products; Electrical Equipment, Appliances & Components; Miscellaneous Manufacturing; Transportation Equipment; Plastics & Rubber Products; and Machinery. The three industries reporting paying decreased prices for raw materials in January are: Primary Metals; Chemical Products; and Food, Beverage & Tobacco Products.

Backlog of Orders†
ISM®’s Backlog of Orders Index registered 44.7 percent, a 0.6-percentage point decrease compared to December’s reading of 45.3 percent, indicating order backlogs contracted for the 16th consecutive month after a 27-month period of expansion. Of the six largest manufacturing industries, only Transportation Equipment expanded order backlogs in January. “The index remains in contraction, as production rates and new order levels continue to have a negative effect on backlogs,” says Fiore.

Of 18 manufacturing industries, the two that are reporting growth in order backlogs in January are: Primary Metals; and Transportation Equipment. The nine industries reporting lower backlogs in January — in the following order — are: Wood Products; Furniture & Related Products; Electrical Equipment, Appliances & Components; Machinery; Computer & Electronic Products; Food, Beverage & Tobacco Products; Fabricated Metal Products; Chemical Products; and Miscellaneous Manufacturing. Six industries reported no change in backlog of orders in January compared to December.

New Export Orders†
ISM®’s New Export Orders Index registered 45.2 percent in January, 4.7 percentage points lower than the December reading of 49.9 percent. “The New Export Orders Index indicated that export orders contracted for the eighth consecutive month, at a much faster rate in January. The index has shown weak performance for the last 18 months. Panelists returned to a more bearish perception for both China and Europe. The index registered its lowest level since May 2020 (39.5 percent),” says Fiore.

The three industries reporting growth in new export orders in January are: Nonmetallic Mineral Products; Miscellaneous Manufacturing; and Transportation Equipment. The nine industries reporting a decrease in new export orders in January — in the following order — are: Paper Products; Furniture & Related Products; Computer & Electronic Products; Plastics & Rubber Products; Machinery; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; Chemical Products; and Fabricated Metal Products.

Imports†
ISM®’s Imports Index registered 50.1 percent in January, an increase of 3.7 percentage points compared to December’s figure of 46.4 percent. “Imports grew in January after contracting for 14 consecutive months. With the Lunar New Year starting in early February, there should be a continued expansion in the Imports Index, assuming no other external factors. Panelists noted rising ocean freight costs and extended trans-Suez lead times to account for risk in the area,” says Fiore.

The six industries reporting an increase in import volumes in January — listed in the following order — are: Nonmetallic Mineral Products; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; Fabricated Metal Products; Miscellaneous Manufacturing; and Transportation Equipment. The five industries that reported lower volumes of imports in January are: Wood Products; Paper Products; Plastics & Rubber Products; Computer & Electronic Products; and Chemical Products. Seven industries reported no change in imports in January.

†The Supplier Deliveries, Customers’ Inventories, Prices, Backlog of Orders, New Export Orders, and Imports indexes do not meet the accepted criteria for seasonal adjustments.

Buying Policy
The average commitment lead time for Capital Expenditures in January was 172 days, a decrease of two days compared to December. Average lead time in January for Production Materials was 83 days, an increase of one day. Average lead time for Maintenance, Repair and Operating (MRO) Supplies was 43 days, a decrease of three days compared to December.

Posted: February 1, 2024

Source: Institute for Supply Management

The report was issued today by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee:

“The Manufacturing PMI® registered 47.4 percent in December, up 0.7 percentage point from the 46.7 percent recorded in November. The overall economy continued in contraction for a third month after one month of weak expansion preceded by nine months of contraction and a 30-month period of expansion before that. (A Manufacturing PMI above 48.7 percent, over a period of time, generally indicates an expansion of the overall economy.) The New Orders Index remained in contraction territory at 47.1 percent, 1.2 percentage points lower than the figure of 48.3 percent recorded in November. The Production Index reading of 50.3 percent is a 1.8-percentage point increase compared to November’s figure of 48.5 percent. The Prices Index registered 45.2 percent, down 4.7 percentage points compared to the reading of 49.9 percent in November. The Backlog of Orders Index registered 45.3 percent, 6 percentage points higher than the November reading of 39.3 percent. The Employment Index registered 48.1 percent, up 2.3 percentage points from the 45.8 percent reported in November.

“The Supplier Deliveries Index figure of 47 percent is 0.8 percentage point higher than the 46.2 percent recorded in November. (Supplier Deliveries is the only ISM Report On Business index that is inversed; a reading of above 50 percent indicates slower deliveries, which is typical as the economy improves and customer demand increases.)

“The Inventories Index decreased by 0.5 percentage point to 44.3 percent; the November reading was 44.8 percent. The New Export Orders Index reading of 49.9 percent is 3.9 percentage points higher than November’s figure of 46 percent. The Imports Index remained in contraction territory, registering 46.4 percent, 0.2 percentage point higher than the 46.2 percent reported in November.”

Fiore continues, “The U.S. manufacturing sector continued to contract, but at a slightly slower rate in December as compared to November. Companies are still managing outputs appropriately as order softness continues. Demand eased, with the (1) New Orders Index contracting at a faster rate, (2) New Export Orders Index essentially flat, and (3) Backlog of Orders Index climbing back above 40 percent but still in fairly strong contraction territory. The Customers’ Inventories Index returned to contraction, becoming more accommodative for future production. Output/Consumption (measured by the Production and Employment indexes) contracted but improved, with a combined 4.1-percentage point upward impact on the Manufacturing PMI calculation. Panelists’ companies maintained production levels month over month and continued actions to reduce head counts in December, primarily through layoffs. Inputs — defined as supplier deliveries, inventories, prices and imports — continued to accommodate future demand growth. The Supplier Deliveries Index indicated faster deliveries for the 15th straight month, and the Inventories Index moved downward while remaining in moderate contraction territory. The Prices Index dropped further into ‘decreasing’ territory, signifying soft energy markets, offset by increases in the steel and aluminum markets. Manufacturing supplier lead times continue to decrease (supported by panelists’ comments), a positive for future economic activity.

“None of the six biggest manufacturing industries registered growth in December.

“Demand remains soft, and production execution is stable compared to November, as panelists’ companies continue to manage outputs, material inputs and labor costs. Suppliers continue to have capacity. Eighty-four percent of manufacturing gross domestic product (GDP) contracted in December, up from 65 percent in November. More importantly, the share of sector GDP registering a composite PMI calculation at or below 45 percent — a good barometer of overall manufacturing weakness — was 48 percent in December, compared to 54 percent in November and 35 percent in October. Among the top six industries by contribution to manufacturing GDP, three (Machinery; Petroleum & Coal Products; and Computer & Electronic Products) had a PMI at or below 45 percent, the same number as the previous month,” Fiore said.

The only manufacturing industry to report growth in December is Primary Metals. The 16 industries reporting contraction in December — in the following order — are: Printing & Related Support Activities; Apparel, Leather & Allied Products; Plastics & Rubber Products; Machinery; Nonmetallic Mineral Products; Textile Mills; Petroleum & Coal Products; Paper Products; Wood Products; Fabricated Metal Products; Computer & Electronic Products; Miscellaneous Manufacturing; Furniture & Related Products; Electrical Equipment, Appliances & Components; Transportation Equipment; and Chemical Products.

What Respondents Are Saying

“Anticipation of the U.S. Federal Reserve holding off on interest-rate changes will encourage more companies to spend on capital investments again. As budgets get approval after the start of the calendar year, this should help drive investment and increase manufacturing activity once again.” [Computer & Electronic Products]

“Overall, order intake has picked up over the last quarter and a backlog of projects is beginning to accumulate.” [Chemical Products]

“Demand is up across the board. We are starting to see back orders grow again.” [Transportation Equipment]

“Commodity costs are decreasing. Supply is readily available, and customers are still ordering to last year’s volumes.” [Food, Beverage & Tobacco Products]

“Business is slowing. Finished goods inventories are growing.” [Machinery]

“We are forecasting a somewhat strong year for 2024. We’re currently mildly optimistic for how next year will play out.” [Fabricated Metal Products]

“We are seeing stronger demand from our American Automotive OEM customers now that the United Auto Workers (UAW) strike has been resolved. Looking at a very strong first quarter of 2024.” [Primary Metals]

“Higher financing costs have diminished demand for residential investment. Customers are delaying a portion of their plans until borrowing costs are reduced. We are impacted with reduced new orders, diminished backlog of orders and uncertain short-term demand for products and services.” [Wood Products]

“Finishing the year similar to 2022; however, 2023 was more erratic. Working to restore inventory position to ensure we have appropriate safety stock.” [Electrical Equipment, Appliances & Components]

“Business conditions are good; sales and production are tracking in accordance with forecasts.” [Miscellaneous Manufacturing]

Manufacturing ISM® Report On Business® data is seasonally adjusted for the New Orders, Production, Employment and Inventories indexes.
*Number of months moving in current direction.

Commodities Reported Up/Down In Price And In Short Supply 

Commodities Up in Price
Aluminum*; Electrical Components (2); Electronic Components (4); Fasteners; Labor – Temporary (4); Polypropylene (3); Steel (6); Steel – Cold Rolled (2); Steel – Hot Rolled (2); Steel – Scrap; and Steel Products*.

Commodities Down in Price
Aluminum* (7); Copper Products; Corrugate; Corrugated Boxes (5); Crude Oil (2); Diesel (2); Natural Gas; Packaging Materials; Pallets; Plastic Resins; Stainless Steel Products; and Steel Products* (7).

Commodities in Short Supply
Electrical Components (39); Electronic Components (37); Labor — Skilled/Technical; and Semiconductors (2).

Note: The number of consecutive months the commodity is listed is indicated after each item.
*Indicates both up and down in price.

December 2023 Manufacturing Index Summaries

Manufacturing PMI®
The U.S. manufacturing sector contracted in December, as the Manufacturing PMI registered 47.4 percent in December, up 0.7 percentage point compared to November’s reading of 46.7 percent. “This is the 14th month of contraction. Four out of the five subindexes that directly factor into the Manufacturing PMI are in contraction territory, down from all five in November. The New Orders Index logged its 16th month in contraction territory at a faster rate in December. Of the six biggest manufacturing industries, none registered growth in December,” says Fiore. A reading above 50 percent indicates that the manufacturing sector is generally expanding; below 50 percent indicates that it is generally contracting.

A Manufacturing PMI above 48.7 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the December Manufacturing PMI indicates the overall economy contracted for a third straight month after one month of growth preceded by nine consecutive months of contraction and 30 months of expansion from June 2020 to November 2022. “The past relationship between the Manufacturing PMI and the overall economy indicates that the December reading (47.4 percent) corresponds to a change of minus-0.5 percent in real gross domestic product (GDP) on an annualized basis,” says Fiore.

The Last 12 Months

New Orders
ISM’s New Orders Index contracted for the 16th consecutive month in December, registering 47.1 percent, a decrease of 1.2 percentage points compared to November’s reading of 48.3 percent. “Of the six largest manufacturing sectors, only Chemical Products reported increased new orders, a positive indicator for the entire manufacturing industry sector. New order levels contracted at a faster rate compared to November as a result of continuing sluggishness in four capital-focused industries — Computer & Electronic Products; Transportation Equipment (though transitory); Machinery; and Fabricated Metal Products — that are among the seven biggest by share of manufacturing GDP,” says Fiore. A New Orders Index above 52.7 percent, over time, is generally consistent with an increase in the Census Bureau’s series on manufacturing orders (in constant 2000 dollars).

The four manufacturing industries that reported growth in new orders in December are: Textile Mills; Primary Metals; Miscellaneous Manufacturing; and Chemical Products. The 13 industries reporting a decline in new orders in December, in the following order: Printing & Related Support Activities; Apparel, Leather & Allied Products; Wood Products; Nonmetallic Mineral Products; Furniture & Related Products; Plastics & Rubber Products; Petroleum & Coal Products; Paper Products; Machinery; Fabricated Metal Products; Transportation Equipment; Computer & Electronic Products; and Electrical Equipment, Appliances & Components.

Production
The Production Index moved back into expansion territory in December, registering 50.3 percent, 1.8 percentage points higher than the November reading of 48.5 percent. The November contraction was preceded by two months of expansion, “unchanged” status (a reading of 50 percent) in August, and two months of contraction before that. “Of the top six industries, two — Transportation Equipment; and Food, Beverage & Tobacco Products — expanded in December. Panelists’ companies are meeting customer demand, as demonstrated by the Customers’ Inventories Index registering on the low side of ‘about right’ status,” says Fiore. An index above 52.2 percent, over time, is generally consistent with an increase in the Federal Reserve Board’s Industrial Production figures.

The three industries reporting growth in production during the month of December are: Transportation Equipment; Food, Beverage & Tobacco Products; and Primary Metals. The 13 industries reporting a decrease in production in December — in the following order — are: Printing & Related Support Activities; Apparel, Leather & Allied Products; Textile Mills; Petroleum & Coal Products; Nonmetallic Mineral Products; Electrical Equipment, Appliances & Components; Furniture & Related Products; Fabricated Metal Products; Computer & Electronic Products; Plastics & Rubber Products; Chemical Products; Machinery; and Miscellaneous Manufacturing.

Employment
ISM’s Employment Index registered 48.1 percent in December, 2.3 percentage points higher than the November reading of 45.8 percent. “The index indicated employment contracted again in December (but at a slower rate) after one month of expansion and three months of contraction before that. Of the six big manufacturing sectors, two (Transportation Equipment; and Chemical Products) expanded. Labor management sentiment at Business Survey Committee respondents’ companies continues to indicate a slowdown in hiring and, in December, a continuation of staff-reduction activity. Attrition, freezes and layoffs to reduce head counts was activity similar to November, with layoffs being the most common measure. Panelists’ comments were equally split between companies hiring and others reducing their labor forces, as was the case in November,” says Fiore. An Employment Index above 50.4 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

Of 18 manufacturing industries, three reported employment growth in December: Nonmetallic Mineral Products; Transportation Equipment; and Chemical Products. The nine industries reporting a decrease in employment in December, in the following order, are: Plastics & Rubber Products; Textile Mills; Machinery; Paper Products; Miscellaneous Manufacturing; Primary Metals; Fabricated Metal Products; Computer & Electronic Products; and Food, Beverage & Tobacco Products. Six industries reported no change in employment in December compared to November.

Supplier Deliveries†
Delivery performance of suppliers to manufacturing organizations was faster for the 15th straight month in December, as the Supplier Deliveries Index registered 47 percent, 0.8 percentage point higher than the 46.2 percent reported in November. After registering 52.4 percent in September 2022, the index went into contraction territory in October and has been there since, with an average reading of 46 percent over the last 12 months, up from a rolling 12-month average of 45.8 percent in November. Of the top six manufacturing industries, only Food, Beverage & Tobacco Products reported slower deliveries, reflecting the industry’s seasonality. “Panelists’ comments continue to indicate that suppliers’ performance is improving,” says Fiore. A reading below 50 percent indicates faster deliveries, while a reading above 50 percent indicates slower deliveries.

The three manufacturing industries reporting slower supplier deliveries in December are: Furniture & Related Products; Food, Beverage & Tobacco Products; and Miscellaneous Manufacturing. The seven industries reporting faster supplier deliveries in December — in the following order — are: Machinery; Transportation Equipment; Computer & Electronic Products; Electrical Equipment, Appliances & Components; Plastics & Rubber Products; Fabricated Metal Products; and Chemical Products. Eight industries reported no change in delivery performance in December compared to November.

Inventories
The Inventories Index registered 44.3 percent in December, 0.5 percentage point lower than the 44.8 percent reported in November. “Manufacturing inventories contracted at a slightly faster rate compared to the previous month. Of the six big industries, only Chemical Products increased manufacturing inventories in December. This is considered a positive indicator for future chemicals output growth as well as overall improvement in the other 17 industry sectors, as Chemical Products is a good gauge of total manufacturing demand. Overall, panelists’ companies continue to manage manufacturing inventory levels down, as companies prepare for fiscal year closure,” says Fiore. An Inventories Index greater than 44.4 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).

Of 18 manufacturing industries, four reported higher inventories in December: Electrical Equipment, Appliances & Components; Primary Metals; Chemical Products; and Furniture & Related Products. The 13 industries reporting lower inventories in December — in the following order — are: Printing & Related Support Activities; Apparel, Leather & Allied Products; Textile Mills; Paper Products; Nonmetallic Mineral Products; Machinery; Miscellaneous Manufacturing; Plastics & Rubber Products; Petroleum & Coal Products; Transportation Equipment; Food, Beverage & Tobacco Products; Computer & Electronic Products; and Fabricated Metal Products.

Customers’ Inventories†
ISM’s Customers’ Inventories Index registered 48.1 percent in December, down 2.7 percentage points compared to the 50.8 reported in November. “Customers’ inventory levels sagged, moving down into the lower end of ‘just right,’ as panelists report their companies’ customers have a shortage of their products in inventory. This is considered neutral for future production,” says Fiore.

The six industries reporting customers’ inventories as too high in December — in the following order — are: Apparel, Leather & Allied Products; Wood Products; Furniture & Related Products; Plastics & Rubber Products; Electrical Equipment, Appliances & Components; and Computer & Electronic Products. The six industries reporting customers’ inventories as too low in December, in order, are: Primary Metals; Paper Products; Fabricated Metal Products; Chemical Products; Food, Beverage & Tobacco Products; and Machinery.

Prices†
The ISM Prices Index registered 45.2 percent, 4.7 percentage points lower compared to the November reading of 49.9 percent, indicating raw materials prices decreased in December for the eighth consecutive month. The index has been in contraction (or “decreasing”) territory since May, and a lower reading compared to November indicated a faster rate of price decreases. “Panelists’ comments indicate that buyers and suppliers continue to negotiate price levels for 2024, with commodity markets remaining highly volatile. Recent decreases in energy markets have been offset by increases in the steel markets. One of the top six manufacturing industries that is heavily steel dependent (Machinery, for the second month in a row) reported price increases in December. Eighty-six percent of panelists’ companies reported ‘same’ or ‘lower’ prices in December, compared to 84 percent in November,” says Fiore. A Prices Index above 52.9 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Producer Price Index for Intermediate Materials.

In December, the four industries that reported paying increased prices for raw materials are: Fabricated Metal Products; Machinery; Electrical Equipment, Appliances & Components; and Miscellaneous Manufacturing. The eight industries reporting paying decreased prices for raw materials in December — in the following order — are: Petroleum & Coal Products; Food, Beverage & Tobacco Products; Primary Metals; Paper Products; Furniture & Related Products; Transportation Equipment; Computer & Electronic Products; and Chemical Products. Six industries reported no change in input prices in December compared to November.

Backlog of Orders†
ISM’s Backlog of Orders Index registered 45.3 percent, a 6-percentage point gain compared to November’s reading of 39.3 percent, indicating order backlogs contracted for the 15th consecutive month (at a notably slower rate in December) after a 27-month period of expansion. Two of the six largest manufacturing sectors (Petroleum & Coal Products; and Chemical Products) expanded order backlogs in December. “The index remains in contraction as production rates and new order levels continue to have a negative effect on backlogs but to a lesser extent in December. The index registered its highest reading since September 2022, when it was at 50.9 percent,” says Fiore.

Of 18 manufacturing industries, the five that are reporting growth in order backlogs in December are: Nonmetallic Mineral Products; Paper Products; Petroleum & Coal Products; Miscellaneous Manufacturing; and Chemical Products. The nine industries reporting lower backlogs in December — in the following order — are: Furniture & Related Products; Wood Products; Machinery; Plastics & Rubber Products; Food, Beverage & Tobacco Products; Transportation Equipment; Electrical Equipment, Appliances & Components; Computer & Electronic Products; and Fabricated Metal Products.

New Export Orders†
ISM’s New Export Orders Index registered 49.9 percent in December, 3.9 percentage points higher than the November reading of 46 percent. “The New Export Orders Index indicated that export orders contracted for the seventh consecutive month in December, but at a much slower rate. The index has shown weak performance for the last 17 months. However, for the first time in many months, panelists are more bullish on export activity, for both the Asia-Pacific region and Europe,” says Fiore.

The six industries reporting growth in new export orders in December — in the following order — are: Paper Products; Food, Beverage & Tobacco Products; Chemical Products; Plastics & Rubber Products; Primary Metals; and Transportation Equipment. The five industries reporting a decrease in new export orders in December are: Textile Mills; Furniture & Related Products; Machinery; Computer & Electronic Products; and Miscellaneous Manufacturing.

Imports†
ISM’s Imports Index registered 46.4 percent in December, an increase of 0.2 percentage point compared to November’s figure of 46.2 percent. “Imports contracted for the 14h consecutive month, at a slightly slower rate in December. Reduced imports remain consistent with slowing demand. Shipping capacity, prices and lead times continue to be accommodative,” says Fiore.

The two industries reporting an increase in import volumes in December are: Food, Beverage & Tobacco Products; and Primary Metals. The 10 industries that reported lower volumes of imports in December — listed in the following order — are: Wood Products; Paper Products; Plastics & Rubber Products; Chemical Products; Machinery; Computer & Electronic Products; Electrical Equipment, Appliances & Components; Fabricated Metal Products; Miscellaneous Manufacturing; and Transportation Equipment. Six industries reported no change in imports in December.

†The Supplier Deliveries, Customers’ Inventories, Prices, Backlog of Orders, New Export Orders, and Imports indexes do not meet the accepted criteria for seasonal adjustments.

Buying Policy
The average commitment lead time for Capital Expenditures in December was 174 days, a decrease of four days compared to November. Average lead time in December for Production Materials was 82 days, an increase of three days. Average lead time for Maintenance, Repair and Operating (MRO) Supplies was 46 days, an increase of three days compared to November.

Posted: January 3, 2024

Source: Institute for Supply Management