The financial analysis website Seeking Alpha called it the biggest ISM manufacturing disappointment in a year, but it’s not because the manufacturing industry is shrinking.
On the heels of the April Manufacturing ISM Report on Business, a highly cited survey that benchmarks manufacturing industry growth, it’s clear that the booming industrial sector is facing some roadblocks.
Bloomberg says the most significant challenge lies with the surge in demand from a growing sector, causing bottlenecks that place a strain on businesses – perhaps slowing the economy overall.
The April 2018 report, released May 1st, posted a Purchasing Manager’s Index (PMI) reading of 57.3 percent. The PMI is a metric intended to benchmark growth trends, and anything above 50 generally indicates that the manufacturing industry is expanding. While this figure has dipped over the last few months, the February PMI reading of 60.8 was the highest since 2004, suggesting this major baseline is still well in positive territory. Additionally, 17 of the 18 industries surveyed recorded growth.
But there are other record high numbers in the report that aren’t so worthy of celebration: The Backlog of Orders Index continued expanding, according to ISM, with its highest reading since May 2004. While this should keep production at “robust” levels, it also means lead time extensions for many businesses.
Adding to the mixed bag is another month of slowing supplier deliveries, which Tim Fiore, Chair of the ISM Manufacturing Business Survey Committee, describes as “a continuing constraint to production growth.” Adds Fiore, “Lead time extensions in many areas, supplier labor shortages, and transportation delays and uncertainty in the steel and aluminum markets will continue to restrict production output for the foreseeable future.”
As Bloomberg states, “U.S. factories are having too much of a good thing,” suggesting that these problems could be a precursor to a future slump. That said, the numbers suggest that while production may not be reaching its true potential due to supply chain issues, it has expanded for the 20th consecutive month nonetheless.
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