Inside The ISM Manufacturing And Non-Manufacturing Reports On Business with ISM’s Tim Fiore and Anthony Nieves

July ISM Report
Guest Tim Fiore
Guest Tim Fiore

The July 2018 PMI is 58.1

Host Lew Weiss welcomes Tim Fiore, Chair of the Institute for Supply Management Manufacturing Business Survey Committee with an unprecedented look inside look at the ISM Manufacturing Report On Business for July 2018. Don’t miss this live report for a deep dive into the report and take a close look at the latest developments through the world of manufacturing.

The complete ISM Manufacturing Report On Business can be found at the bottom of this page.

Anthony Nieves
Guest Anthony Nieves

ISM Non-Manufacturing Report on Business

ISM Committee Chair Anthony Nieves presents the Non-Manufacturing Report on Business(R) that includes 18 non-manufacturing industries: Mining; Utilities; Retail Trade; Educational Services; Wholesale Trade; Construction; Transportation & Warehousing; Public Administration; Agriculture, Forestry, Fishing & Hunting; Real Estate, Rental & Leasing; Finance & Insurance; Other Services; Arts, Entertainment & Recreation; Management of Companies & Support Services; Professional, Scientific & Technical Services; Accommodation & Food Services; Information; and Health Care & Social Assistance.

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Read the Complete Report Below

PMI® at 58.1%

New Orders, Production, and Employment Growing

Supplier Deliveries Slowing at Slower Rate; Backlog Growing

Raw Materials Inventories Growing; Customers’ Inventories Too Low

Prices Increasing at Slower Rate; Exports and Imports Growing

(Tempe, Arizona) — Economic activity in the manufacturing sector expanded in July, and the overall economy grew for the 111th consecutive month, 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 July PMI® registered 58.1 percent, a decrease of 2.1 percentage points from the June reading of 60.2 percent. The New Orders Index registered 60.2 percent, a decrease of 3.3 percentage points from the June reading of 63.5 percent. The Production Index registered 58.5 percent, a 3.8 percentage point decrease compared to the June reading of 62.3 percent. The Employment Index registered 56.5 percent, an increase of 0.5 percentage point from the June reading of 56 percent. The Supplier Deliveries Index registered 62.1 percent, a 6.1 percentage point decrease from the June reading of 68.2 percent. The Inventories Index registered 53.3 percent, an increase of 2.5 percentage points from the June reading of 50.8 percent. The Prices Index registered 73.2 percent in July, a 3.6 percentage point decrease from the June reading of 76.8 percent, indicating higher raw materials prices for the 29th consecutive month.

“Comments from the panel reflect continued expanding business strength. Demand remains strong, with the New Orders Index at 60 percent or above for the 15th straight month, and the Customers’ Inventories Index remaining low. The Backlog of Orders Index continued to expand, but at lower levels. Production and employment continues to expand in spite of labor and material shortages. Inputs — expressed as supplier deliveries, inventories and imports — had expansion increases, due primarily to negative supply chain issues, but at easing levels compared to the prior month. Lead-time extensions, steel and aluminum disruptions, supplier labor issues, and transportation difficulties continue. Export orders expanded, but at lower levels. Price pressure remains strong, but the index softened for the second straight month. Demand remains robust, but the nation’s employment resources and supply chains continue to struggle. Respondents are again overwhelmingly concerned about how tariff-related activity, including reciprocal tariffs, will continue to affect their business,” says Fiore.

Of the 18 manufacturing industries, 17 reported growth in July, in the following order: Textile Mills; Electrical Equipment, Appliances & Components; Apparel, Leather & Allied Products; Computer & Electronic Products; Petroleum & Coal Products; Paper Products; Printing & Related Support Activities; Nonmetallic Mineral Products; Machinery; Plastics & Rubber Products; Miscellaneous Manufacturing; Fabricated Metal Products; Food, Beverage & Tobacco Products; Furniture & Related Products; Chemical Products; Wood Products; and Transportation Equipment. The only industry reporting a decrease in July is Primary Metals.

What respondents are saying
  • “Global demand is still strong. Working on contingency plans for the Chinese tariffs. We will probably onshore most of that material. Labor availability is becoming an issue.” (Computer & Electronic Products)
  • “As a result of new tariffs on materials to/from China, we are taking measures to move impacted materials ahead of effective dates, which in some cases is resulting in holding higher inventories.” (Chemical Products)
  • “Steel cost increases are causing a lot of negotiations. The increases are real and will affect costs beginning in the third quarter of 2018.” (Electrical Equipment, Appliances & Components)
  • “Reviewing the business case for importing manufactured parts from China, as new tariffs will lead to increased costs that we will pass along to our domestic customers.” (Transportation Equipment)
  • “Corn and soybean meal costs are reducing. Labor continues to be a struggle to fill open positions.” (Food, Beverage & Tobacco Products)
  • “The steel tariffs are a concern to us. We have already seen steel prices increase due to the threat of the tariffs and are seeing kickback from our customers due to the higher prices. We are concerned that the end customer will go to off shore to purchase the finished product.” (Fabricated Metal Products)
  • “Business is moving along at a brisk pace, outperforming the annual plan year-to-date (calendar year financials). However, internationally, nationally and locally, we are finding many manufacturers behind schedule due to capacity constraints. They are stating their order intake is heavy and/or they cannot find qualified employees to get all the work done.” (Machinery)
  • “Tariffs are [resulting in] customs inspection-time increases on imported raw materials from China. Logistics seems to be improving, but we are seeing a [continuing] tight chemical bulk tanker market.” (Plastics & Rubber Products)
  • “Our customer demand is high, but supply of aluminum is tight. Also, tariffs are negatively affecting our bottom line, as we are unable to pass increases to all of our customers. Plus, we are seeing increases in our construction costs because of the steel price increases. Labor market is extremely tight for professional personnel, plant technicians and support associates.” (Primary Metals)
  • “The so-called trade war is now taking its toll on business activity, resulting in substantial reductions to new export orders. China has all but stopped taking orders, causing inventories to build up in the U.S. Domestic business is steady. However, it is too small to carry the load that export markets have retreated from. As a result, we will be meeting as a corporation next week to recast our second-half sales and revenue projections.” (Wood Products)

Manufacturing at a Glance
July 2018

Index Series Index Jul Series Index Jun Percentage Point Change Direction Rate of Change Trend* (Months)
PMI® 58.1 60.2 -2.1 Growing Slower 23
New Orders 60.2 63.5 -3.3 Growing Slower 31
Production 58.5 62.3 -3.8 Growing Slower 23
Employment 56.5 56.0 0.5 Growing Faster 22
Supplier Deliveries 62.1 68.2 -6.1 Slowing Slower 22
Inventories 53.3 50.8 2.5 Growing Faster 7
Customers’ Inventories 39.4 39.7 -0.3 Too Low Faster 22
Prices 73.2 76.8 -3.6 Increasing Slower 29
Backlog of Orders 54.7 60.1 -5.4 Growing Slower 18
New Export Orders 55.3 56.3 -1.0 Growing Slower 29
Imports 54.7 59.0 -4.3 Growing Slower 18
OVERALL ECONOMY Growing Slower 111
Manufacturing Sector Growing Slower 23
Manufacturing ISM® Report On Business® data is seasonally adjusted for the New Orders, Production, Employment and Supplier Deliveries Indexes.
*Number of months moving in current direction.

COMMODITIES REPORTED UP/DOWN IN PRICE AND IN SHORT SUPPLY

Commodities Up in Price

Aluminum (21); Aluminum Based Products (3); Capacitors (2); Caustic Soda (13); Chemicals; Copper* (9); Corrugate (22); Corrugated Boxes (2); Diesel (2); Fabricated Metal Products; Freight (6); Hydraulic Valves (2); Lumber; Machine Components; Natural Gas (2); Nylon (2); Paper (3); Resistors; Silicone Fluids; Solvents (2); Steel; Steel — Galvanized (2); Steel — Hot Rolled (20); Steel — Stainless (4); and Steel Based Products (3).

Commodities Down in Price

Copper*.

Commodities in Short Supply

Aluminum (3); Capacitors (13); Electrical Components (4); Electronic Components (3); Fabricated Metal Products; Freight (3); Integrated Circuits; Memory; Nylon; Resistors (9); and Steel Based Products (3).

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


July 2018 Manufacturing Index Summaries


PMI®

Manufacturing expanded in July as the PMI® registered 58.1 percent, a decrease of 2.1 percentage points from the June reading of 60.2 percent. “This indicates strong growth in manufacturing for the 23rd consecutive month, led by continued expansion in new orders, production and employment. Inventories are expanding at a faster rate as a result of supplier deliveries improving compared to the prior month,” says Fiore. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

A PMI® above 43.2 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the July PMI® indicates growth for the 111th consecutive month in the overall economy and the 23rd straight month of growth in the manufacturing sector. “The past relationship between the PMI® and the overall economy indicates that the PMI® for July (58.1 percent) corresponds to a 4.6-percent increase in real gross domestic product (GDP) on an annualized basis.”

The Last 12 Months

Month PMI®
Jul 2018 58.1
Jun 2018 60.2
May 2018 58.7
Apr 2018 57.3
Mar 2018 59.3
Feb 2018 60.8
Month PMI®
Jan 2018 59.1
Dec 2017 59.3
Nov 2017 58.2
Oct 2017 58.5
Sep 2017 60.2
Aug 2017 59.3
59.1
60.8
57.3

New Orders

ISM®’s New Orders Index registered 60.2 percent in July, which is a decrease of 3.3 percentage points when compared to the 63.5 percent reported for June, indicating growth in new orders for the 31st consecutive month. “New orders expansion continued at high levels, with the index at or above 60 percent for the 15th straight month. Customer inventories remain too low,” says Fiore. A New Orders Index above 52.4 percent, over time, is generally consistent with an increase in the Census Bureau’s series on manufacturing orders (in constant 2000 dollars).

Sixteen of 18 industries reported growth in new orders in July, listed in the following order: Printing & Related Support Activities; Apparel, Leather & Allied Products; Plastics & Rubber Products; Electrical Equipment, Appliances & Components; Computer & Electronic Products; Textile Mills; Machinery; Furniture & Related Products; Petroleum & Coal Products; Chemical Products; Paper Products; Fabricated Metal Products; Primary Metals; Transportation Equipment; Miscellaneous Manufacturing; and Food, Beverage & Tobacco Products. No industry reported a decrease in new orders in July.

New Orders % Higher % Same % Lower Net Index
Jul 2018 29.0 60.1 10.9 +18.1 60.2
Jun 2018 39.7 53.0 7.3 +32.5 63.5
May 2018 37.5 56.3 6.2 +31.3 63.7
Apr 2018 42.4 49.5 8.1 +34.3 61.2

Production

ISM®’s Production Index registered 58.5 percent in July, which is a decrease of 3.8 percentage points when compared to the 62.3 percent reported for June, indicating growth in production for the 23rd consecutive month. “Production expansion continues. Labor constraints throughout the supply chain and transportation difficulties continue to limit full production potential,” says Fiore. An index above 51.5 percent, over time, is generally consistent with an increase in the Federal Reserve Board’s Industrial Production figures.

The 15 industries reporting growth in production during the month of July — listed in order — are: Electrical Equipment, Appliances & Components; Apparel, Leather & Allied Products; Wood Products; Textile Mills; Petroleum & Coal Products; Computer & Electronic Products; Furniture & Related Products; Nonmetallic Mineral Products; Chemical Products; Fabricated Metal Products; Machinery; Miscellaneous Manufacturing; Paper Products; Food, Beverage & Tobacco Products; and Plastics & Rubber Products. The only industry reporting a decrease in production in July is Primary Metals.

Production % Higher % Same % Lower Net Index
Jul 2018 31.5 52.6 15.9 +15.6 58.5
Jun 2018 38.7 51.0 10.3 +28.4 62.3
May 2018 35.8 55.2 8.9 +26.9 61.5
Apr 2018 33.6 58.5 8.0 +25.6 57.2

Employment

ISM®’s Employment Index registered 56.5 percent in July, an increase of 0.5 percentage point when compared to the June reading of 56 percent. This indicates growth in employment in July for the 22nd consecutive month. “Employment maintained a modestly strong level of expansion and supported production growth during the month. Respondents continued to note labor-market issues as a constraint to their production and their suppliers’ production capacity,” says Fiore. An Employment Index above 50.8 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

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

Employment % Higher % Same % Lower Net Index
Jul 2018 27.1 61.2 11.7 +15.4 56.5
Jun 2018 29.0 59.6 11.3 +17.7 56.0
May 2018 27.6 61.2 11.3 +16.3 56.3
Apr 2018 23.1 66.8 10.2 +12.9 54.2

Supplier Deliveries

The delivery performance of suppliers to manufacturing organizations slowed in July, as the Supplier Deliveries Index registered 62.1 percent. This is 6.1 percentage points lower than the 68.2 percent reported for June. “This is the 22nd straight month of slowing supplier deliveries, and although the index has shown a decline, the quantity of respondents reporting faster supplier deliveries compared to the prior month is minimal,” says Fiore. A reading below 50 percent indicates faster deliveries, while a reading above 50 percent indicates slower deliveries.

The 15 industries reporting slower supplier deliveries in July — listed in order — are: Machinery; Apparel, Leather & Allied Products; Paper Products; Computer & Electronic Products; Textile Mills; Nonmetallic Mineral Products; Furniture & Related Products; Fabricated Metal Products; Food, Beverage & Tobacco Products; Petroleum & Coal Products; Plastics & Rubber Products; Electrical Equipment, Appliances & Components; Miscellaneous Manufacturing; Chemical Products; and Transportation Equipment. The only industry reporting faster supplier deliveries in July is Primary Metals.

Supplier Deliveries % Slower % Same % Faster Net Index
Jul 2018 28.5 67.8 3.7 +24.8 62.1
Jun 2018 38.7 58.9 2.4 +36.3 68.2
May 2018 29.9 65.7 4.4 +25.5 62.0
Apr 2018 25.6 71.3 3.2 +22.4 61.1

Inventories*

The Inventories Index registered 53.3 percent in July, which is an increase of 2.5 percentage points when compared to the 50.8 percent reported for June, indicating growth in raw materials inventories. “Inventories are expanding again due to supplier delivery performance improvement in spite of longer lead times and continued disruptions in the transportation sector,” says Fiore. An Inventories Index greater than 43 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).

The 12 industries reporting higher inventories in July — listed in order — are: Textile Mills; Printing & Related Support Activities; Nonmetallic Mineral Products; Petroleum & Coal Products; Electrical Equipment, Appliances & Components; Paper Products; Plastics & Rubber Products; Miscellaneous Manufacturing; Chemical Products; Food, Beverage & Tobacco Products; Transportation Equipment; and Fabricated Metal Products. The four industries reporting lower inventories in July are: Apparel, Leather & Allied Products; Computer & Electronic Products; Machinery; and Primary Metals.

Inventories % Higher % Same % Lower Net Index
Jul 2018 22.3 61.9 15.8 +6.5 53.3
Jun 2018 20.7 60.2 19.1 +1.6 50.8
May 2018 17.7 65.1 17.3 +0.4 50.2
Apr 2018 20.4 65.0 14.6 +5.8 52.9

Customers’ Inventories*

ISM®’s Customers’ Inventories Index registered 39.4 percent in July, which is 0.3 percentage point lower than the 39.7 percent reported for June, indicating that customers’ inventory levels were still considered too low. “Customers’ inventory levels are too low for the 22nd consecutive month, which continues to support an overall positive environment for production output growth in the near term,” says Fiore.

Only three manufacturing industries reported customers’ inventories as too high during the month of July: Apparel, Leather & Allied Products; Wood Products; and Furniture & Related Products. The 11 industries reporting customers’ inventories as too low during July — listed in order — are: Nonmetallic Mineral Products; Computer & Electronic Products; Paper Products; Food, Beverage & Tobacco Products; Machinery; Fabricated Metal Products; Transportation Equipment; Plastics & Rubber Products; Electrical Equipment, Appliances & Components; Chemical Products; and Miscellaneous Manufacturing.

Customers’ Inventories % Reporting % Too High % About Right % Too Low Net Index
Jul 2018 79 4.8 69.2 26.0 -21.2 39.4
Jun 2018 79 5.3 68.9 25.8 -20.6 39.7
May 2018 80 7.3 64.5 28.2 -20.9 39.6
Apr 2018 87 9.7 69.2 21.1 -11.4 44.3

Prices*

The ISM® Prices Index registered 73.2 percent in July, a decrease of 3.6 percentage points from the June reading of 76.8 percent, indicating an increase in raw materials prices for the 29th consecutive month. In July, 54.6 percent of respondents reported paying higher prices, 8.1 percent reported paying lower prices, and 37.3 percent of supply executives reported paying the same prices as in June. “The price increases across all industry sectors continue. The Business Survey Committee noted price increases in metals (all steels, steel components, aluminum and copper), chemicals, corrugate, freight, electronic components, fuels, and wood products. Shortages continue in aluminum, electronics components, steels, steel-based products, electrical components and freight,” says Fiore. A Prices Index above 52.4 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Producer Price Index for Intermediate Materials.

Seventeen of the 18 industries reported paying increased prices for raw materials in July, in the following order: Apparel, Leather & Allied Products; Textile Mills; Fabricated Metal Products; Machinery; Furniture & Related Products; Petroleum & Coal Products; Paper Products; Electrical Equipment, Appliances & Components; Plastics & Rubber Products; Computer & Electronic Products; Miscellaneous Manufacturing; Primary Metals; Printing & Related Support Activities; Nonmetallic Mineral Products; Chemical Products; Transportation Equipment; and Food, Beverage & Tobacco Products. No manufacturing industries reported paying less during the month of July.

Prices % Higher % Same % Lower Net Index
Jul 2018 54.6 37.3 8.1 +46.5 73.2
Jun 2018 56.9 39.9 3.3 +53.6 76.8
May 2018 62.2 34.7 3.1 +59.1 79.5
Apr 2018 61.2 36.2 2.6 +58.6 79.3

Backlog of Orders*

ISM®’s Backlog of Orders Index registered 54.7 percent in July, which is 5.4 percentage points lower than the 60.1 percent reported in June, indicating growth in order backlogs for the 18th consecutive month. “Backlog expansion continued during the period, but at lower expansion levels. Continued low levels of customer inventory and strong new order expansion support production requirements in the near term,” says Fiore.

The 10 industries reporting growth in order backlogs in July — listed in order — are: Apparel, Leather & Allied Products; Textile Mills; Machinery; Computer & Electronic Products; Electrical Equipment, Appliances & Components; Fabricated Metal Products; Plastics & Rubber Products; Paper Products; Chemical Products; and Miscellaneous Manufacturing. The three industries reporting a decrease in order backlogs during July are: Primary Metals; Food, Beverage & Tobacco Products; and Furniture & Related Products.

Backlog of Orders* % Reporting % Higher % Same % Lower Net Index
Jul 2018 87 24.0 61.3 14.7 +9.3 54.7
Jun 2018 90 32.8 54.6 12.6 +20.2 60.1
May 2018 89 34.8 57.5 7.7 +27.1 63.5
Apr 2018 88 32.3 59.3 8.3 +24.0 62.0

New Export Orders*

ISM®’s New Export Orders Index registered 55.3 percent in July, a decrease of 1 percentage point when compared to the 56.3 percent reported for June, indicating growth in new export orders for the 29th consecutive month. “Five of the six big industry sectors continued to expand export activity during the period,” says Fiore.

The seven industries reporting growth in new export orders in July — listed in order — are: Petroleum & Coal Products; Nonmetallic Mineral Products; Computer & Electronic Products; Fabricated Metal Products; Food, Beverage & Tobacco Products; Machinery; and Chemical Products. The five industries reporting a decrease in new export orders in July are: Wood Products; Primary Metals; Paper Products; Plastics & Rubber Products; and Transportation Equipment. Six industries reported no change in new export orders in July.

New Export Orders* % Reporting % Higher % Same % Lower Net Index
Jul 2018 78 18.1 74.3 7.6 +10.5 55.3
Jun 2018 79 15.8 81.1 3.1 +12.6 56.3
May 2018 79 17.3 76.5 6.2 +11.2 55.6
Apr 2018 79 18.6 78.2 3.2 +15.4 57.7

Imports*

ISM®’s Imports Index registered 54.7 percent in July, a decrease of 4.3 percentage points when compared to the 59 percent reported for June, indicating that imports grew in July for the 18th consecutive month. “Imports continued to expand, but at a lower level compared to the prior month,” says Fiore.

The 11 industries reporting growth in imports during the month of July — listed in order — are: Apparel, Leather & Allied Products; Textile Mills; Chemical Products; Fabricated Metal Products; Nonmetallic Mineral Products; Machinery; Food, Beverage & Tobacco Products; Computer & Electronic Products; Transportation Equipment; Plastics & Rubber Products; and Miscellaneous Manufacturing. The two industries reporting a decrease in imports during July are: Petroleum & Coal Products; and Primary Metals.

Imports % Reporting % Higher % Same % Lower Net Index
Jul 2018 82 19.4 70.6 10.0 +9.4 54.7
Jun 2018 85 24.3 69.3 6.4 +17.9 59.0
May 2018 85 17.1 74.0 8.9 +8.2 54.1
Apr 2018 86 21.6 72.4 6.0 +15.6 57.8
*The Inventories, Customers’ Inventories, Prices, Backlog of Orders, New Export Orders and Imports Indexes do not meet the accepted criteria for seasonal adjustments.

Buying Policy

Average commitment lead time for Capital Expenditures decreased by six days in July to 137 days. Average lead time for Production Materials was unchanged at 69 days. Average lead time for Maintenance, Repair and Operating (MRO) Supplies increased by four days to 35 days.

Percent Reporting

Capital Expenditures Hand-to-Mouth 30 Days 60 Days 90 Days 6 Months 1 Year + Average Days
Jul 2018 23 7 9 15 28 18 137
Jun 2018 21 7 9 17 26 20 143
May 2018 19 6 10 19 27 19 143
Apr 2018 21 5 10 21 21 22 145
Production Materials Hand-to-Mouth 30 Days 60 Days 90 Days 6 Months 1 Year + Average Days
Jul 2018 11 37 23 18 7 4 69
Jun 2018 11 33 29 16 7 4 69
May 2018 13 30 26 20 7 4 70
Apr 2018 10 35 28 17 7 3 67
MRO Supplies Hand-to-Mouth 30 Days 60 Days 90 Days 6 Months 1 Year + Average Days
Jul 2018 37 41 13 6 2 1 35
Jun 2018 36 43 14 5 2 0 31
May 2018 32 44 16 7 1 0 33
Apr 2018 35 41 15 7 2 0 35
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