Economic activity in the manufacturing sector expanded in December, and the overall economy grew for the 103rd consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report On Business.
The report was issued on January 3 by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management (ISM) Manufacturing Business Survey Committee: "The December PMI registered 59.7%, an increase of 1.5 percentage points from the November reading of 58.2%. The New Orders Index registered 69.4%, an increase of 5.4 percentage points from the November reading of 64%. The Production Index registered 65.8%, a 1.9 percentage point increase compared to the November reading of 63.9%. The Employment Index registered 57%, a decrease of 2.7 percentage points from the November reading of 59.7%. The Supplier Deliveries Index registered 57.9%, a 1.4 percentage point increase from the November reading of 56.5%. The Inventories Index registered 48.5%, an increase of 1.5 percentage points from the November reading of 47%. The Prices Index registered 69% in December, a 3.5 percentage point increase from the November reading of 65.5%, indicating higher raw materials prices for the 22nd consecutive month. Comments from the panel reflect expanding business conditions, with new orders and production leading gains; employment expanding at a slower rate; order backlogs expanding at a faster rate; and export orders and imports continuing to grow in December. Supplier deliveries continued to slow (improving) at a faster rate, and inventories continued to contract at a slower rate during the period. Price increases continued at a faster rate. The Customers' Inventories Index declined and remains at low levels."
Of the 18 manufacturing industries, 16 reported growth in December in the following order: Machinery; Computer & Electronic Products; Paper Products; Apparel, Leather & Allied Products; Printing & Related Support Activities; Primary Metals; Nonmetallic Mineral Products; Petroleum & Coal Products; Plastics & Rubber Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; Furniture & Related Products; Transportation Equipment; Chemical Products; Fabricated Metal Products; and Electrical Equipment, Appliances & Components. Two industries reported contraction during the period: Wood Products; and Textile Mills.
WHAT RESPONDENTS ARE SAYING …
"Our business is moving higher into the new year. Increased sales are resulting in increased purchases of CapEx and raw materials." (Chemical Products)
"Strong international sales — Europe and Australia — versus last two years. U.S. sales continue to grow. Seeing commodity pricing pressures." (Machinery)
"We are seeing a ramp-up with companies releasing early 2018 spend now." (Computer & Electronic Products)
"Business conditions are good; we are tracking well to our projections for the year." (Miscellaneous Manufacturing)
"First quarter 2018 probably will be better than the fourth quarter 2017." (Fabricated Metal Products)
"Domestic and international sales on the rise." (Transportation Equipment)
"Economy [is] strong and business is strong, yet signals of headwinds in 2018 are persistent." (Food, Beverage & Tobacco Products)
"All suppliers are reporting strong business activity and difficulties obtaining qualified employees." (Paper Products)
"Demand at this time is strong in the construction part of our business. I think it is due to the impact of the hurricanes and the rebuild and new construction that is required." (Plastics & Rubber Products)
Manufacturing ISM Report On Business data is seasonally adjusted for the New Orders, Production, Employment and Supplier Deliveries Indexes.
COMMODITIES REPORTED UP/DOWN IN PRICE AND IN SHORT SUPPLY
Commodities Up in Price
Aluminum* (14); Caustic Soda (6); Copper (2); Corrugate (15); Electrical Components; Memory; Polypropylene (4); Rubber; Steel; Steel — Scrap; Steel — Hot Rolled (13); Stainless Steel; and Titanium Dioxide (3).
Commodities Down in Price
Aluminum*.
Commodities in Short Supply
Capacitors (6); Electrical Components; Resistors (2); and Titanium Dioxide (2).
Note: The number of consecutive months the commodity is listed is indicated after each item.
*Indicates both up and down in price.
DECEMBER 2017 MANUFACTURING INDEX SUMMARIES
PMI
Manufacturing expanded in December as the PMI registered 59.7%, an increase of 1.5 percentage points from the November reading of 58.2%. "This indicates growth in manufacturing for the 16th consecutive month, led by strong expansion in new orders and production with hiring growing at a slower rate and supplier deliveries continuing to struggle," says Fiore. A reading above 50% indicates that the manufacturing economy is generally expanding; below 50% indicates that it is generally contracting.
A PMI above 43.3%, over a period of time, generally indicates an expansion of the overall economy. Therefore, the December PMI indicates growth for the 103rd consecutive month in the overall economy and the 16th straight month of growth in the manufacturing sector. Fiore says, "The past relationship between the PMI and the overall economy indicates that the average PMI for January through December (57.6%) corresponds to a 4.5% increase in real gross domestic product (GDP) on an annualized basis. In addition, if the PMI for December (59.7%) is annualized, it corresponds to a 5.2% increase in real GDP annually."
New Orders
ISM's New Orders Index registered 69.4% in December, which is an increase of 5.4 percentage points when compared to the 64% reported for November, indicating growth in new orders for the 16th consecutive month. This is the highest reading since January 2004, when the index registered 70.6%. "New Orders expansion continues at a strong pace, with the index at seven straight months of levels above 60%. This is its highest expansion level in 14 years," says Fiore. A New Orders Index above 52.3%, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders (in constant 2000 dollars).
Fifteen of 18 industries reported growth in new orders in December, listed in the following order: Machinery; Apparel, Leather & Allied Products; Primary Metals; Computer & Electronic Products; Plastics & Rubber Products; Miscellaneous Manufacturing; Printing & Related Support Activities; Paper Products; Fabricated Metal Products; Food, Beverage & Tobacco Products; Chemical Products; Nonmetallic Mineral Products; Electrical Equipment, Appliances & Components; Transportation Equipment; and Petroleum & Coal Products. The only industry reporting a decrease in new orders in December compared to November is Wood Products.
Production
ISM's Production Index registered 65.8% in December, which is an increase of 1.9 percentage points when compared to the 63.9% reported for November, indicating growth in production for the 16th consecutive month. This is the highest reading since May 2010, when the index registered 66.5%. "Production expansion continues at the strongest levels in 7 years, but could not keep up with new order input and customer inventory needs, resulting in lower customer inventories and higher backlogs," says Fiore. An index above 51.4%, 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 December — listed in order — are: Apparel, Leather & Allied Products; Machinery; Paper Products; Computer & Electronic Products; Petroleum & Coal Products; Primary Metals; Printing & Related Support Activities; Furniture & Related Products; Transportation Equipment; Chemical Products; Food, Beverage & Tobacco Products; Miscellaneous Manufacturing; and Electrical Equipment, Appliances & Components. The only industry reporting a decrease in production in December compared to November is Nonmetallic Mineral Products.
Employment
ISM's Employment Index registered 57% in December, a decrease of 2.7 percentage points when compared to the November reading of 59.7%. This indicates growth in employment in December for the 15th consecutive month. "Employment expansion remains strong, but difficulties across the supply chain continue to constrain production output. ISM's recent Semiannual Economic Forecast-indicates that 65% had difficulty hiring new employees and 44% increased starting pay to attract new workers," says Fiore. An Employment Index above 50.5%, 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 11 reporting employment growth in December — listed in order — are: Primary Metals; Machinery; Computer & Electronic Products; Paper Products; Transportation Equipment; Food, Beverage & Tobacco Products; Petroleum & Coal Products; Chemical Products; Miscellaneous Manufacturing; Nonmetallic Mineral Products; and Electrical Equipment, Appliances & Components. Two industries — Apparel, Leather & Allied Products; and Fabricated Metal Products — reported a decrease in employment in December.
Supplier Deliveries
The delivery performance of suppliers to manufacturing organizations was slower in December, as the Supplier Deliveries Index registered 57.9%. This is 1.4 percentage points higher than the 56.5% reported for November. "This is the 20th straight month of slowing supplier deliveries and continued delivery performance difficulties affecting production expansion. Modest gains were made to inventories in spite of these ongoing supply chain issues," says Fiore. A reading below 50% indicates faster deliveries, while a reading above 50% indicates slower deliveries.
The 12 industries reporting slower supplier deliveries in December — listed in order — are: Apparel, Leather & Allied Products; Nonmetallic Mineral Products; Machinery; Fabricated Metal Products; Paper Products; Plastics & Rubber Products; Computer & Electronic Products; Chemical Products; Petroleum & Coal Products; Food, Beverage & Tobacco Products; Primary Metals; and Miscellaneous Manufacturing. Two industries — Electrical Equipment, Appliances & Components; and Transportation Equipment — reported faster deliveries in December compared to November.
Inventories*
The Inventories Index registered 48.5% in December, which is an increase of 1.5 percentage points when compared to the 47% reported for November, indicating raw materials inventories contracted in December. "The inventory contraction reflects the continued difficulty of the supply chain to deliver materials and services meeting production schedules," says Fiore. An Inventories Index greater than 42.9%, over time, is generally consistent with expansion in the Bureau of Economic Analysis (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).
The 10 industries reporting higher inventories in December — listed in order — are: Printing & Related Support Activities; Nonmetallic Mineral Products; Furniture & Related Products; Paper Products; Plastics & Rubber Products; Computer & Electronic Products; Petroleum & Coal Products; Machinery; Electrical Equipment, Appliances & Components; and Miscellaneous Manufacturing. The seven industries reporting lower inventories in December — listed in order — are: Textile Mills; Apparel, Leather & Allied Products; Primary Metals; Fabricated Metal Products; Chemical Products; Food, Beverage & Tobacco Products; and Transportation Equipment.
Customers' Inventories*
ISM's Customers' Inventories Index registered 42% in December, which is 3.5 percentage points lower than the 45.5% reported for November, indicating that customers' inventory levels were still considered too low in December. "The index continues to remain at low levels and continues to contract, at a faster rate. Production output was not sufficient to maintain acceptable customer inventory levels," says Fiore.
One manufacturing industry — Furniture & Related Products — reported customers' inventories as being too high during the month of December. The 13 industries reporting customers' inventories as too low during December — listed in order — are: Textile Mills; Primary Metals; Apparel, Leather & Allied Products; Electrical Equipment, Appliances & Components; Plastics & Rubber Products; Miscellaneous Manufacturing; Chemical Products; Paper Products; Food, Beverage & Tobacco Products; Transportation Equipment; Machinery; Fabricated Metal Products; and Computer & Electronic Products.
Prices*
The ISM Prices Index registered 69% in December, an increase of 3.5 percentage points from the November level of 65.5%, indicating an increase in raw materials prices for the 22nd consecutive month. In December, 41% of respondents reported paying higher prices, 3% reported paying lower prices, and 56% of supply executives reported paying the same prices as in November. "The Business Survey Committee noted price increases continue on metals (steel, aluminum, copper and scrap) intermediate chemicals, corrugate and plastic resins. The Committee also reported some price relief on selected electronic components," says Fiore. A Prices Index above 52.4%, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Producer Price Index for Intermediate Materials.
Seventeen industries reported paying increased prices for raw materials in December, in the following order: Apparel, Leather & Allied Products; Wood Products; Nonmetallic Mineral Products; Machinery; Plastics & Rubber Products; Miscellaneous Manufacturing; Electrical Equipment, Appliances & Components; Fabricated Metal Products; Chemical Products; Computer & Electronic Products; Printing & Related Support Activities; Food, Beverage & Tobacco Products; Primary Metals; Transportation Equipment; Petroleum & Coal Products; Furniture & Related Products; and Paper Products. The only industry reporting price decreases in December compared to November is Textile Mills.
Backlog of Orders*
ISM's Backlog of Orders Index registered 56% in December, an increase of 1 percentage point when compared to the 55% reported for November, indicating growth in order backlogs for the 11th consecutive month. "Backlog expansion continued during the period. Backlog provides strong support to continued manufacturing expansion," says Fiore. Of the 89% of respondents who reported their backlog of orders, 28% reported greater backlogs, 16% reported smaller backlogs, and 56% reported no change from November.
The 11 industries reporting growth in order backlogs in December — listed in order — are: Textile Mills; Apparel, Leather & Allied Products; Plastics & Rubber Products; Machinery; Nonmetallic Mineral Products; Furniture & Related Products; Paper Products; Computer & Electronic Products; Fabricated Metal Products; Transportation Equipment; and Primary Metals. The five industries reporting a decrease in order backlogs during December are: Electrical Equipment, Appliances & Components; Printing & Related Support Activities; Food, Beverage & Tobacco Products; Miscellaneous Manufacturing; and Chemical Products.
New Export Orders*
ISM's New Export Orders Index registered 58.5% in December, an increase of 2.5 percentage points when compared to the 56% reported for November, indicating growth in new export orders for the 22nd consecutive month. "Five of the six big industry sectors, accounting for 63% of manufacturing GDP, continued to expand export activity during the period," says Fiore.
The 10 industries reporting growth in new export orders in December — listed in order — are: Apparel, Leather & Allied Products; Nonmetallic Mineral Products; Computer & Electronic Products; Machinery; Miscellaneous Manufacturing; Plastics & Rubber Products; Chemical Products; Transportation Equipment; Fabricated Metal Products; and Food, Beverage & Tobacco Products. The only industry reporting a decrease in new export orders in December compared to November is Primary Metals. Six industries reported no change in new export orders in December compared to November.
Imports*
ISM's Imports Index registered 57.5% in December, an increase of 3.0 percentage points when compared to the 54.5% reported for November, indicating that imports grew in December for the 11th consecutive month. "Imports expanded at significantly greater rates during the period to keep pace with production output," says Fiore.
The 13 industries reporting growth in imports during the month of December — listed in order — are: Printing & Related Support Activities; Electrical Equipment, Appliances & Components; Computer & Electronic Products; Nonmetallic Mineral Products; Plastics & Rubber Products; Fabricated Metal Products; Petroleum & Coal Products; Machinery; Miscellaneous Manufacturing; Transportation Equipment; Food, Beverage & Tobacco Products; Chemical Products; and Paper Products. The only industry that reported a decrease in imports during December compared to November is Primary Metals.
*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 in December to 139 days from 140 days. Average lead time for Production Materials remained the same at 59 days. Average lead time for Maintenance, Repair and Operating (MRO) Supplies decreased by 1 day to 36 days.
