Recent employment, ISM reports show mixed manufacturing numbers

When the Institute for Supply Management (ISM) released its monthly Report on Business last week, the manufacturing industry got a bit of a jolt when December’s Manufacturing Purchasing Managers’ Index (PMI) plummeted more than 5 percent from the previous month. The drop to 54.1 percent is a 25-month low for the PMI, which usually saw a slight fluctuation of less than a percentage point during that period.

This does correlate with how 2018 closed out. Compared to the rest of the year, December was shaky ground for the economy as Wall Street and stock markets took a hit in the face of the evolving complication surrounding President Trump’s trade war and partial government shutdown, which appears to have no end in sight (here's a live update). And the longer the shutdown lasts, the less visibility into data will be available to U.S. businesses. Several federal departments that release vital economic data, like the Census Bureau, will be tied up in the shutdown.

But all things considered, this economic slowdown to end the year is no more than just a slight speed bump. After all, 54.1 percent on the PMI scale is still an indication of economic growth for manufacturing. In fact, it’s the 116th straight month of overall U.S. economy growth and the 28th consecutive month of growth across manufacturing sectors. Any PMI reading more than 50 represents expansion compared to the previous month while a PMI less than 50 means contraction.

As ISM Manufacturing Business Survey Committee Chair Timothy Fiore explains, business across the industry’s sectors has sustained growth, just not at the high rate we were used to for that last couple years.

“Comments from the panel reflect continued expanding business strength, but at much lower levels,” Fiore said. “The manufacturing community continues to expand, but at much lower levels and at a sharp decline from November.”

Fiore went on to say: “Demand softened, with the New Orders Index retreating to recent low levels, the Customers’ Inventories Index remaining too low — a positive heading into the first quarter of 2019 — and the Backlog of Orders declining to a zero-expansion level. Consumption continued to strengthen, with production and employment still expanding, but at much lower levels compared to prior periods. Inputs — expressed as supplier deliveries, inventories and imports — softened as well, with suppliers improving delivery performance, and inventories and imports declining. Exports continue to expand, but at low levels consistent with November. Price increases relaxed to levels not seen since June 2017, when the index registered 53 percent.”

However, of the 18 industries that provide data for the month ISM report, the fabricated metal products were just one of six sectors that reported a significant slowdown in December. This of course comes to no surprise as Trump’s imposed 25 percent tariff on imported steel and 10 percent tariff on imported aluminum continues to impact the metal-working industry.

The anonymous representative from the fabricated metal products segment pointed to a slightly cautious approach from other in the industry while entering 2019: “Caution seems to be the outlook. Are we in a correction, or is the market getting ready to slow over time?”

It’s a fair question. Coming off such a boom year for the economy, many wonder when the tide will turn towards a recession. And to that point, could the “too good to be true” mentality actually retreat the economy into a recession mindset?

That’s remained to be seen—and obviously tows the line of worst-case scenario. But in the meantime, there is the reassurance behind some strong 2018 manufacturing employment reports to keep the U.S. optimistic.

A Bureau of Labor Statistics report shows that 2018 was the manufacturing industry’s best year of job creation in nearly 20 years. According to the report, manufacturing posted net job gains of around 284,000, an employment boost not seen since 1997. And that’s an almost 80,000-person bump from 2017, where the industry added 207,000.

This past December alone saw 32,000 jobs added in manufacturing with a notable gain in fabricated metals.

The National Association of Manufacturers (NAM) backed up these positive numbers with its own report, which, along with job creation, tracks optimism in the manufacturing industry. Here are a few highlights from the report:

• Most manufacturers (88.7 percent) have a positive outlook of their businesses, putting the average for 2018 at 92.4 percent—the highest annual average in the survey’s 20-year history.
• Optimism among small manufacturers remained high at 87.9 percent.
• Manufacturers predict strong growth rates in employee wages (2.3 percent), capital investments (2.6 percent) and sales (4.3 percent) over the next 12 months.
• Attracting and retaining a quality workforce remained manufacturers’ top concern (68.2 percent).
• The inability to attract a quality workforce has forced more than one in four manufacturers to turn down new business opportunities.
• Increased raw material costs and trade uncertainties marked the second- and third-largest challenges for manufacturers, at 65.1 percent and 60.4 percent, respectively.

“This year was one for the record books, with manufacturers’ average optimism for 2018 hitting an all-time high,” NAM President and CEO Jay Timmons said in the report. “Empowered by tax reform and regulatory certainty, manufacturers are keeping our promise to expand our operations, hire new workers and raise wages and benefits."

But one of the most glaring numbers from NAM reflecting the on-going battle against the skills gap in manufacturing. The report shows that the inability to attract and retain quality workers remains the industry’s highest concern (68.2 percent). Government data shows that there are more than 520,000 open U.S. manufacturing jobs, which is an all-time high.

Having said all that, 2019 is building up to be an interesting year for the metal fabrication sector.