In this issue:
Tariffs are Taxes! By Tim Grady page 18
GLOBAL PMI OUTLOOK PAGE 12
ENERGY OUTLOOK PAGE 14
EUROZONE OUTLOOK PAGE 15
MARCH
ISM PMI:
57.3%
The Full Report Page 22
Cert. # C2015-01481
IN THIS ISSUE PUBLISHERS STATEMENT - p.2 MANUFACTURING OUTLOOK - p.3 Publisher – Lewis A. Weiss Editor-In-Chief – Tim Grady Design – Rovere Media
INTRODUCING WOMEN AND MANUFACTURING - p.6
Contributing Writers:
NORTH AMERICAN OUTLOOK - p. 7
Royce Lowe, UK and EU International Correspondent
METALS OUTLOOK - p.9
Tim Grady, Co-Host, Manufacturing Talk Radio
AUTOMOTIVE OUTLOOK - p.10
Chris Kuehl, PH.D - Chief Economist, FMA
AEROSPACE OUTLOOK - p.11
Norbert Ore, Senior Correspondent for Global PMI Survey Reports
GLOBAL PMI OUTLOOK - p.12 by NORBERT ORE
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ISSUES OUTLOOK - p.13 by ROYCE LOWE ENERGY OUTLOOK - p.14 EUROZONE OUTLOOK - p.15 ASIA OUTLOOK - 16 SOUTH AMERICA OUTLOOK - 17 TARIFFS ARE TAXES! - p.18 by TIM GRADY MARCH ISM PMI REPORT - p.22
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Metals & Manufacturing Outlook
PUBLISHERS STATEMENT
BY LEWIS A. WEISS As this issue of Metals & Manufacturing Outlook rolls off the digital press, I recall the many interviews I have had hosting Manufacturing Talk Radio about the economy with knowledgeable people like Tim Fiore and Anthony Nieves from ISM, Dr. Chris Kuehl from the Fabricators and Manufacturer’s Association International, Norbert Ore, Director of Industry Surveys for Strategas Research Partners, and Chad Moutray from the National Association of Manufacturers, all of whom have a pretty rosey outlook on the current state of manufacturing. I can’t help but conclude that manufacturing is humming along fairly well – or at least that was my view prior to the tariffs of March 23, 2018. For an economy that had virtually no headwinds, the actions of the current administration may have created several unnecessary ones by putting NAFTA on the chopping block, pulling out of TPP – and then trying to opt back in, and piling on tariffs in a trade war where the real pain won’t be suffered in China, but rather in the heartland of America in both manufacturing and agriculture, and all the related industries, as well as the American consumer as prices rise for durable goods made with steel and aluminum. It would appear that, as U.S. steel producers ratchet up their prices, inflation will be triggered, adding to the list of unnecessary headwinds. Initially, tariffs were to undergo a 30-day public comment period followed by a 30-day review process to determine their impact on U.S. companies. A determination on the final list and an effective date would be made thereafter. But, for all the reporting that the tariffs have not | April 2018
yet kicked in, it appears that U.S. Customs has been assessing tariffs in findings since March 23 – in spite of statements to the contrary by the administration, and as reported by the mainstream media as “not yet happening”. Customs brokers are typically the entity that pays expenses for their clients to the ports and U.S. Customs, and then collects from their clients, and Manufacturing Talk Radio is looking into reports that tariffs are already being paid on imports from China of steel and aluminum. When we have nailed down the real details of this story, we’ll present it on the air – with some trepidation because talking about negative economic issues can snowball into more negative economic issues that result in a slide in the economy. We certainly don’t want to increase the speed or strength of headwinds in a robust manufacturing cycle – but stay tuned. Both the Tax Cuts and Jobs Act of 2017 and Executive Order 13771 Reducing Regulation and Controlling Regulatory Costs, have been stimulants for manufacturing. Capital investment is coming on strong and funds held overseas are flowing back onshore to fuel capacity expansion and other business activities which were in the doldrums since 2008. However, now there may be some nervous hedging as the trade war heats up. It may have seemed like a good idea at the time, but I’m not sure in retrospect it will have been the only tool the administration could have used to get a fair trade deal with China, protect the intellectual property of U.S. companies while opening up the China market for better balanced imports and exports. Unfortunately, this is now an uncomfortable wait-and-see process with hopeful comments
occasionally mentioned in the press without anything firm with the ink drying between the U.S. and China. Perhaps deals will be struck and the aforementioned tariffs will fade into the sunset well before an effective date is determined, which was originally reported as being retroactive to March 23. Resolving the international trade differences would be an excellent outcome if accompanied by refunds from U.S. Customs for any tariffs already collected on goods entering the U.S. from China. And just as importantly, China would back off its retaliatory tariffs on U.S. goods, including many agricultural products, which would remove the pocketbook pain on the many farmers due to take a significant hit if negotiations drag on or break down. As an example, if tariffs by China on imports of soybeans and pork are imposed, overseas buyers could cancel contracts. This would leave U.S. farmers with soybeans and pork they have to sell into a market flooded with soybeans and pork, which would collapse market prices. Farmers would experience huge losses, and some family farms could go bankrupt. While President Trump said some Americans would suffer some pain but they would endure it as patriots, he is not the one facing the potential total loss of decades of dedication to a family farm, or years of future debt trying to recover 2018 losses that could hit as early as June. What the actual impact of the tariffs on U.S. GDP in general, and the many people who will truly feel it in their manufacturing plants, their stockyards, their harvesters and their wallets and purses will be is purely a guessing game at present – an uncomfortable, wait-and-see, twistin-the-wind, crystal ball outcome that we hope will be good for everyone. With that said, the balance of this issue of Metals & Manufacturing Outlook is mostly great news. We trust you will enjoy flipping through it. Lewis A. Weiss Publisher
Metals & Manufacturing Outlook
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MANUFACTURING OUTLOOK BY ROYCE LOWE
At last count there were billions of dollars worth of goods on both sides of the China-U.S. ‘border’ that were lining up waiting to have tariffs slapped on them. China didn’t lie down and slip away, but vowed to hold up its end and show the U.S. that although it didn’t really want to, it could play the game too. Soybeans, autos, chemicals and aircraft were targeted by China, as was wine. The U.S. went after China’s industrial machinery, information and communications technology, robots, steel, TV components, medical devices, dishwashers, snow blowers and flame throwers. Flame throwers?
just about everywhere in March, but for the moment still looks healthy. U.S. restarting idled steel mills. See METALS OUTLOOK. The BLS jobs report for March shows the addition of 103,000 non-farm payroll jobs - following February’s adjusted 326,000 – including 22,000 new jobs in manufacturing, of which 9,000 were added in Fabricated Metal Products. Over the year 232,000 jobs were added in manufacturing.
For further details see ISSUES OUTLOOK.
The ISM PMI figure for U.S. manufacturing fell back to 59.3 percent in March from 60.8 percent in February, representing the 19th consecutive month of growth in manufacturing. The overall economy grew for the 106th consecutive month. See NORTH AMERICAN OUTLOOK.
Global manufacturing eased back
IHS Markit’s remarks on the U.S.
There will be a public hearing on May 15 in Washington to try to make sense of all this.
points to the PMI, at 55.6 percent in March, up from February’s 55.3, being at its highest in three years, and manufacturing growth at its strongest in three years. There was a marked increase in production and new orders, and input cost increases to the greatest extent since November 2012. Job creation was reported as strong, backlogs up. Tariffs resulted in increased input costs, with selling prices up accordingly. The outlook was the most positive for three years. The five ISM components are equally weighted at 20 percent each. The IHS Markit components are weighted: 30 percent New Orders, 25 percent Production, 20 percent Employment, 15 percent Supplier Deliveries and 10 percent Raw Materials Inventories.
| April 2018
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Metals & Manufacturing Outlook
The Bureau of Economic Analysis recently released its ‘third’ estimate for the annual rate of Real GDP growth in the fourth quarter of 2017, putting it at 2.9 percent. The figure for the third quarter of 2017 was 3.2 percent.
Here are the latest figures for US new car and light truck sales for ‘the big eight’ for March 2018.
World crude steel production for the 64 reporting countries – which represent 99 percent of world crude steel production for the month of February was 131 791Mt, up 3.5 percent y-o-y. Capacity utilization for the month was 73.3 percent, up 1.8 percent on February 2017 and up 0.5 percent on January 2018. U.S. crude steel production for February 2018 was 6.446 Mt, up 0.4 percent y-o-y. U.S. LIGHT VEHICLE SALES rebounded in March, up 6.3 percent y-o-y, with the U.S. big three showing significant gains. There is talk of an ‘agreement in principle’ from the NAFTA negotiations – which mean the really hard work starts now. As for BREXIT.....well, there has been some progress, but details will come out at regular intervals. Primary Global Aluminum Production in February 2018 was reported at 2.469 million tonnes, since there had been no determination of production in China. In fact the figures for all areas were lower than normal. Production was 416,000 tonnes in GCC; 338,000 tonnes in rest of Asia ; 282,000 tonnes in Western Europe, 286,000 tonnes in North America and 311,000 tonnes in Eastern and Central Europe. GE has manager-teachers. See ISSUES OUTLOOK. Here are the latest figures for US new car and light truck sales for ‘the big eight’ for March 2018.
| April 2018
Manufacturing Laughs
Metals & Manufacturing Outlook
5
THE ECONOMIST magazine, in its latest weekly report on world economies, highlights changes in Gross Domestic Product (GDP), Industrial Production, Consumer Prices and Unemployment Rates for what it considers the world’s major economies. These data are not necessarily good to the present day, but are mostly applicable to at latest the past two months, and show definite trends in the world economy. The figures are qualified as being the latest available, and with reference to a given quarter or month. The figures for GDP represent the % change on the previous quarter, annual rate. The industrial production figures represent year-on-year changes, as do the consumer prices increases. The unemployment figures, %, are for the month as noted.
JUNE 12-14, 2018 // NEW YORK, NY JACOB K. JAVITS CONVENTION CENTER
ATTEND THE EAST COAST’S LARGEST ADVANCED MANUFACTURING EVENT REGISTER NOW at advancedmanufacturingnewyork.com/podcast | April 2018
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Metals & Manufacturing Outlook
Most people have heard that women are 51% of the U.S. population and only 27% of employees in manufacturing. But there is so much more to this story than a few statistics. To bring the story to life, the Manufacturing Broadcasting Corporation (MBC), broadcasters of Manufacturing Talk Radio has launched Women And Manufacturing, an exciting new show where accomplished women interview accomplished women who can share their experiences and encourage women to look across the broad landscape of manufacturing, from the loading dock doors to the C-Suite, and the expanse of jobs and careers in between, to learn more about this exciting sector of the U.S. economy and what it might hold for them. Never before has the manufacturing industry been in such an accelerated state of change, from retirees leaving the workforce creating a serious skills gap and brain drain to the implementation of the technological innovations of modern manufacturing often referred to as Industry 4.0, or the 4th Industrial Revolution. The hosts of Women And Manufacturing, all successful women in their own right, will interview women who are in the midst of a successful career in the industry and their respective companies, providing the guests with an opportunity to give guidance, insight, and inspiration to women who may or may not have considered a career in the industry, from teenagers just beginning to think about their career path to women in the industry or in transition in their own professional lives. The subject matter of the interviews will cover the spectrum of unique challenges any woman might face in the workplace or the industry from the success and accomplishments of women from the shop floor to the C-suite, from executive management to labor unions, and from educational to governmental institutions. Each will share their thoughts in congenial, collegiate conversations with one of 6 hosts who will alternate each week. Hosts will also tease out insights through guest introspection, along with suggestions and recommendations from guests to listeners about navigating the manufacturing and corporate world. Tune in to each episode to hear the accomplished women share their experiences with this generation and the next generation of women who will make and remake manufacturing for the generations who follow in this noble profession which contributes to the greater good of all, improving products, making things better and safer, and fulfilling lives – not just making a living. All of us involved with Women And Manufacturing appreciate your listenership and look forward to your feedback as this incredibly exciting show develops. Visit WOMENANDMFG.COM for more information. | April 2018
Metals & Manufacturing Outlook
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NORTH AMERICAN OUTLOOK BY ROYCE LOWE
The Latest Manufacturing Reports from the United States, Canada and Mexico The Institute of Supply Management PMI figure fell back from 60.8 percent in February, to 59.3 percent in March representing the nineteenth consecutive month of growth in manufacturing. There was growth in the overall economy for the 106th consecutive month. Of the 18 manufacturing industries, 17 reported growth in March, in the following order: Fabricated Metal Products; Plastics & Rubber Products; Computer & Electronic Products; Paper Products; Printing & Related Support Activities; Nonmetallic Mineral Products; Transportation Equipment; Petroleum & Coal Products; Wood Products; Machinery; Chemical Products; Textile Mills; Electrical Equipment, Appliances & Components; Furniture & Related Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; and Primary Metals. The only industry reporting a decrease during the period is Apparel, Leather & Allied Products.
Comments from the manufacturing industries continue in positive mode, but with concerns – from Computer & Electronic Products, Chemical Products and Transportation Equipment – regarding supply constraints and extended lead times. A spokeperson for Food, Beverage & Tobacco Products reports on problems finding carriers and drivers. There are concerns from Machinery; Miscellaneous Manufacturing and Primary Metals regarding newly-imposed tariffs on steel and aluminum causing some panic buying and near-term price hikes.
Inventories 55.5 (56.7) The following five components are not instrumental in the PMI calculation, but are an important part of the manufacturing industry:
Following is a summary of the five major indexes, each weighted at 20 percent in calculation of the PMI number for March; February’s readings are in parentheses:
Aluminum (17); Caustic Soda (9); Cobalt; Copper (5); Corrugate (18); Freight (2); Resin Based Products (2); Steel; Steel — Cold Rolled (3); Steel — Fabricated & Machined Parts (2); Steel — Galvanized (3); Steel — Hot Rolled (16); and Steel — Scrap (4).
New orders Production Employment Supplier Deliveries
61.9 61.0 57.3
(64.2) (62.0) (59.7)
60.6
(61.1)
Customer Inventories 42.0 (43.7) too low Prices 78.1 (74.2) Backlog of orders 59.8 ( 59.8) New export orders 58.7 (62.8) Imports 59.7 (60.5) Commodities Up in Price
| April 2018
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Metals & Manufacturing Outlook
Commodities Down in Price None (2). Commodities in Short Supply Capacitors (9); Resistors (5); and Silicone. The number of consecutive months the commodity is listed is indicated after each item. The complete ISM Report on Business may be found at the end of this MMO report. CANADA again showed strong growth, but cost inflation, spurred on by prices on steel and chemicals, was the highest since April 2014. There were robust increases in production and new orders – both domestic and export – and input buying was up at the fastest
| April 2018
pace in seven years. In some cases sales growth outstripped production capacity. There was supply chain pressure. The manufacturing PMI eased up very slightly in March to 55.7 from February’s 55.6. All regions experienced manufacturing growth in March, led again by Alberta and B.C. Quebec manufacturers saw the strongest rise in new orders since May 2017, while Ontario saw the steepest rise in selling prices. There are reports of severe labor shortages in Quebec. Canada produced 1.030 Mt of crude steel in February, down 10.4 percent y-o-y. Canadian auto sales in March were down slightly by 0.6 percent
y-o-y, with sales at 186,447 units. Passenger cars were down 12.4 percent to 53,932 units and light trucks up 5.2 percent to 132,515 units. MEXICO saw new orders up at a marked and accelerated pace, together with stronger employment growth. The PMI for March rose to 52.4 from February’s 51.6 reading. Production and purchasing activity increased further. There were increases in the costs of fuel, energy, gas and raw materials. Mexico produced 1.535 Mt of crude steel in February, down 7.1 percent y-o-y.
Metals & Manufacturing Outlook
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METALS OUTLOOK
BY ROYCE LOWE
Hot-rolled and cold-rolled steel prices in the U.S. are still on the up, and at the end of March hot-rolled coil was being quoted at around $875 per ton, cold-rolled coil on the verge of $1,000 per ton. Rebar was being quoted at around $ 700 per ton.. European hot-rolled coil is still pricing around €570 per tonne, or equivalent to around $630 per ton, but is expected to increase. More price increases are expected from U.S. mills. Meanwhile there is talk of moves afoot to restart two idled U.S. steel mills. U.S. Steel’s Illinois works – idled in 2015 “ in response to challenging market conditions, including global excess steel capacity and unfairly traded imports ”- will be restarted, should tariffs be implemented, and would allow the company to bring back 500 workers. The restart process is estimated to take four months. Republic Steel, meanwhile, says it is ‘positioned to restart’ its Lorain works – based on tariff announcements – and will create 1,000 jobs. It will take ‘a few months’ to hire and train employees and restart idled equipment. Republic’s president and CEO says they have ‘maintained the Lorain facility while it’s been idled waiting for the opportunity to restart and it
appears the time is finally here.’ European steel prices rise are expected to continue to rise in the wake of the tariffs and a generally healthy demand climate. Non-ferrous metal prices see aluminum, over $1.00 per pound in mid-February, down to $0.90 early April; copper at around $3.05 per pound early April; nickel around $5.80 mid-late March, struggling its way back to $6.00 per pound; zinc recently falling from $1.60 to $1.50 per pound. GKN, one of Britain’s oldest engineering firms, has been sold to Melrose Industries, a company that specializes in turning around troubled manufacturing businesses and selling them on. The price was £8.1 billion ($11.3 billion) and the deal was agreed by 52 percent of GKN’s shareholders. The news was greeted with skepticism by business people and politicians. Melrose say they intend to do justice to GKN by running the company as it should be run. GKN is a major supplier to the U.S. military – and is active in the F-35 program – and to Airbus (who have said that new business with GKN will be impossible following the takeover.) The company further supplies drivetrains to roughly half the world’s cars and light trucks. | April 2018
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Metals & Manufacturing Outlook
AUTOMOTIVE OUTLOOK BY ROYCE LOWE
There are talks afoot between Nissan and Renault with a view to forming what would become the world’s largest automobile company. Full details are not yet available, and it is not known what role the French Government – a major shareholder in Renault – will play. The one thing for sure is that Carlos Ghosn, who is the chairman of both companies, would run the combined entity were a deal to get done.
Ford, under its relatively new CEO Jim Hackett, is working to shift spending away from slow-selling cars to develop new SUVs. They will also spend billions to develop self-driving cars and Electric Vehicles to prepare for the changes expected in the automotive business in the next decade. | April 2018
Tesla seems to be in trouble at the moment. Its Model 3 production is way down, and it’s shut down its S and X lines to try to make up for this. There was a fatal crash in a model X, which could have been the driver’s fault. Workers are getting pep emails, urging them to get the production of the Model 3 where it’s supposed to be. And, of course, people are shorting the stock. To add to all this there is a recall on some 120,000 S model cars
for corrosion from road salt in power steering bolts supplied by, of all companies, Bosch. VW, meanwhile, has come forth and announced that it is committed to the U.S. and to its home in Chattanooga TN, and that it will invest in its plant there to the tune of $340 million to beef up production of its Atlas Sport SUV. And GM upset its union in South Korea by offering no bonus due to what it terms a cash crisis. Workers forced their way into company executive offices, destroying and removing furniture. GM wants to restructure and threatens to file for bankruptcy if the union fails to agree to their restructuring plan. This coincides with a recent trade agreement between the U.S. and South Korea upping the number of automobiles that may be exported from the U.S.
Metals & Manufacturing Outlook
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AEROSPACE OUTLOOK
BY ROYCE LOWE
A new report on the F-35 says that high operating costs are a new threat to the sustainability of the program. An internal U.S. Air Force study says it may need to reduce its overall purchases of the Stealth aircraft unless it can significantly reduce operating and maintenance costs over the next decade. The primary contractor, Lockheed-Martin, together with Northrup Grumman Corp., Pratt and Whitney and BAE Systems plc have worked for some years to make the F-35 program’s supply chain more cost effective and to cut delivery costs. All to do with the F-35 is ‘ongoing’ and its final cost seems to be one of the U.S. Defense Department’s great unknowns.
– Maintenance-Repair and Overhaul – for fixed and rotary wing military aircraft in the Gulf kingdom, and to transfer technology that will allow installation of weapons on those aircraft, and localize the spareparts supply chain there.
And will Boeing suffer in the tariff war? Can China really afford not to buy from Boeing? There are huge backlogs at both Boeing and Airbus. But this situation is long-term and will surely be resolved.
Manufacturing Laughs
Boeing is going into partnership with SAMI (Saudi Arabian Military Industries) and the two parties have signed a memo of understanding to localize over 55 percent of the MRO | April 2018
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Metals & Manufacturing Outlook
GLOBAL PMI OUTLOOK
BY NORBERT ORE Surveying global manufacturing at the end of Q1, the data indicates expectations should remain high even though PMIs may have peaked this cycle. This month 17 of the 18 PMIs that we cover are growing, but there has been a transition from the majority indicating ExpansionStrengthening to ExpansionWeakening which signals slower rates of growth ahead. Europe and North America continue to see large benefits from the global recovery – things are really jumping! The major economies of Asia, with the exception of South Korea, are on an upward trajectory. Eurozone: The EZ PMI (56.6, -2.0) expanded at a weaker rate for the third consecutive month. While this cycle appears to have peaked in December, the PMI has remained above the 55-mark for 15 consecutive months.
| April 2018
The EZ’s manufacturing expansion continues to be led by a resilient Netherlands (61.5, -1.8), Germany (58.2, -2.4), and Austria (58.0, -1.2). The five remaining countries averaged 54.5 percent in March. This follows a five-month trend in which all eight EZ countries’ PMI have been over 55. While the pace of growth is moderating, the European PMIs remain at a level that encourages investment and hiring. United Kingdom: The UK/CIPS PMI (55.1, +0.1) continues to indicate a broad-based expansion in the manufacturing sector post-Brexit. The PMI rose slightly in March, remaining in a range that promotes solid economic growth. China: China’s Official Report, the CFLP PMI (51.5, +1.2), bounced back after the February
PMI sank below the 51-mark following 16 months of 51+ readings. The Caixin China General Manufacturing PMI (51.0, -0.6) shows a similar rate of expansion averaging 51.0 for the same period. Both surveys exhibit China’s soft-landing continuing. India: India’s PMI (51.0, -1.1) slowed modestly while posting its eighth consecutive month of growth, which placed it below its first quarter average of 51.8. Overall, the economy is growing and the stage is set for continuing expansion. North America: Canada (55.7, +0.14) expanded for the 25th consecutive month with sharp rises in new orders and production. Mexico’s (52.4, +0.8) rate of expansion accelerated somewhat, inching above the first quarter average of 52.2.
Metals & Manufacturing Outlook
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ISSUES OUTLOOK BY ROYCE LOWE
Trump has levied tariffs on Chinese goods to the tune of $150 billion. U.S. soybean farmers may be hurt as much as their Chinese counterparts. If China doesn’t get soybean it can’t feed its pigs, hence its people. China imports over $12 billion worth of soybean per year from the U.S. But China says Brazil will help out in the event of a crisis. Canada and Mexico are exempt from the steel tariffs, and the EU, Argentina, Australia, Brazil and South Korea are ‘on pause’ pending further discussions. There are grades and quantities of steel that cannot be produced in the U.S. These would be exempt, as would semi-finished products imported to feed U.S. secondary operations.
GE’s Auburn, Ala plant conducts month-long vocational training sessions at Southern Union State Community College to prepare GE’s growing number of hourly workers. The demand for more trained workers has issued in four sessions per year, and in addition to the Southern Union instructors, the program takes on GE operations managers to lead three-hour classes each week. The in-plant training extends to non-destructive testing , classes in the evaluation of jet engine
components, in short highlyskilled work. This year the Auburn plant will produce 34,000 fuel nozzle injectors for jet engines using laser-powder, additive manufacturing. Feedback from this program points to the advantages of the interaction between operations managers and trainees, both in the ‘classroom’ and later on the shop floor.
Manufacturing Laughs
China is complaining to the WTO. According to 2016 figures from the CIA Factbook: 18.2 percent of China’s exports go to the U.S. $129 billion worth of Chinesemade electrical machinery is bought by the U.S. There was a 59.2 percent growth in Chinese services imported by the U.S. between 2006 and 2016. $347 billion is the U.S. goods trade deficit with China. | April 2018
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Metals & Manufacturing Outlook
ENERGY OUTLOOK
BY ROYCE LOWE
SunPower is set to create a new U.S. solar panel factory. It currently makes most of its panels in Asia and Mexico. Since the imposition of Trump tariffs on imported solar panels, and realizing ‘the way this administration wants to go,’ SunPower’s CEO will announce in late April plans to produce some of the panels it now makes abroad, in one of two western states. The announcement was made hours after China-based JinkoSolar Holding Co. said it will open a plant in Jacksonville, Florida that will employ 200 people and will make 7 million solar panels over 4 years for NextEra Energy Inc., the owner of the state’s largest utility.
| April 2018
Manufacturing Laughs
Metals & Manufacturing Outlook
GLOBAL OUTLOOK
BY ROYCE LOWE
EUROZONE
IHS Markit’s Eurozone Manufacturing Composite Purchasing Managers’ Index (PMI) eased further, from February’s 58.6 reading to March’s 56.6 . There was a slowdown across all nations and manufacturing sub-sections. Supply chain problems reduced production growth and raised selling prices. Operating conditions improved to the least marked extent in eight months in March; growth in production and new business rose to the lowest extent since November 2016, while new export business slipped to a 15-month low.
There was job growth for the 43rd straight month, though at the slowest pace for seven months. Price inflation and selling prices were up. Optimism regarding future production softened somewhat but remained strongly positive overall. Crude steel production in Germany in February was at 3.340 Mt, down 3.2 percent y-o-y; in Italy 2.093 Mt, up 4.5 percent y-o-y; in France 1.251 Mt, up 1.0 percent y-o-y and in Spain 1.118 Mt, up 0.4 percent y-o-y.
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Russia’s crude steel production for February was at 5.150 Mt, down 5.7 percent y-o-y; Ukraine’s was 1.900 Mt, up 11.2 percent y-o-y. Car sales in Western Europe were down by 6 percent in March, dragged down by the UK’s 15.7 percent loss. Germany too was down, by 3.4 percent, as was Italy at 5.8 percent. Spain and France showed sales gains of 2.1 and 2.2 percent respectively. IHS Markit’s PMI for the UK looks to steady growth at the end of the first quarter, staying hardly unchanged from February’s adjusted 55.0 to 55.1 in March. Production growth is up, but there is a slowdown in new orders, both domestic and export. There is a slowdown in input cost and selling price inflation. Slow, steady progress is forecast for manufacturing in the nearterm, and some 55 percent of manufacturers are optimistic regarding increased production 12 months hence. The UK produced 0.574 Mt of crude steel in February, down 3.6 percent y-o-y.
| April 2018
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Metals & Manufacturing Outlook
GLOBAL OUTLOOK
BY ROYCE LOWE
ASIA
Production, new orders and export sales all rose at weaker rates in March in CHINA’s manufacturing sector, with the seasonally-adjusted PMI easing back to 51.0 from February’s 51.6. There was a sharp drop in employment. Input price inflation was at a nine-month low. There is strong confidence in the future of manufacturing in China.
Manufacturing Laughs
CHINA produced 64.930 Mt of crude steel in February, up 5.9 percent y-o-y; Japan 8.296 Mt, down 0.5 percent y-o-y; India 8.434 Mt, up 3.4 percent y-o-y and South Korea 5.415 Mt, down 2.1 percent y-o-y. Taiwan produced 1.810 Mt in February, down 2.0 percent y-o-y. China saw a y-o-y decrease of 11.1 percent in new vehicle sales in February, with sales at 1.72 million units, a figure no doubt affected by the week-long
Chinese New Year Holiday. Sales for the first two months of the year were up 1.7 percent at 4.53 million units. In March, JAPANESE manufacturers saw growth ease further in production and new orders, but new staff were hired amid capacity constraints. Output prices were up at a historicallymarked pace. March’s PMI was down at 53.1 from February’s 54.1. Supplier lead times are up, export sales to the EU, China and South Korea are up, as are backlogs. There is a positive outlook in Japan’s manufacturing sector. INDIA’s business conditions eased in March, with the PMI at 51.0, down from February’s 52.1. Production and new orders were up at a weaker rate and employment dropped for the first time in eight months. Inflationary pressures eased somewhat, and selling prices moved up slightly. Indian manufacturing is still positive on the next 12 months.
| April 2018
Metals & Manufacturing Outlook
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GLOBAL OUTLOOK
BY ROYCE LOWE
SOUTH AMERICA
in association with ISM and IFPSM (International Federation of Purchasing and Supply Management) – eased back further, to a five-month low in March of 53.4, from February’s 54.1.
BRAZIL saw a sharp increase in production and purchasing activity in March, with new orders and production expanding at the second-highest rates in over five years. The growth in buying levels Companies in global manufacturing reported slower was the strongest in over seven growth in production, new orders years. and employment. There were Job creation was recorded for slower rates of growth in both the the sixth consecutive month. consumer and intermediate goods Inflationary pressures were strong. sectors, with the investment goods sector going to its highest The PMI in March was at 53.4, up level in the year so far. from February’s 53.2. Growth slowed in the Eurozone, The quarterly PMI average was China, Japan, India and Australia, 52.6, or the strongest quarterly but was up in the U.S., the UK, gain since Q1 in 2011. Brazil and Russia. Brazil’s crude steel production for the month of February was 2.714 Mt, an increase y-o-y of 5.5 percent. The JP MORGAN GLOBAL MANUFACTURING PMI – a composite index produced by JPMorgan and IHS Markit
Inflows of new orders were still sufficient to test capacity, leading to an increase in backlogs for the 22nd consecutive month. Vendor lead times lengthened for the 25th consecutive month and to the greatest extent in almost seven years. Feb.
March
Global PMI
54.1
53.4
Production
54.8
53.5
New orders
55.0
53.9
New exports
53.1
51.8
Employment
53.1
52.3
ISO9001:2008 and AS9100C
| April 2018
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Metals & Manufacturing Outlook
TARIFFS ARE TAXES!
BY TIM GRADY, EXECUTIVE PRODUCER, MANUFACTURING TALK RADIO The Trump administration has decided to use several tariff acts to impose penalties on international trading partners in the name of national security and the pervasive trade imbalance between the U.S. and other nations. As is his practice, the President tweeted, “We are not in a trade war with China, that war was lost many years ago by the foolish, or incompetent, people who represented the U.S.,” he wrote. “Now we have a Trade Deficit of $500 Billion a year, with Intellectual Property Theft of another $300 Billion. We cannot let this continue!” Oh – okay – so, if it looks like a duck, walks like a duck, and quacks like a duck – it isn’t a duck?!? As is often the case, politicians presume that We, the People, are idiots. We cannot comprehend their grander plan of grandeur, but we should be | April 2018
willing to take the hit as patriotic Americans regardless of their approach to almost anything.
which also prolongs the use of less desirable fuels like coal and fossil fuels.
So far, these are the tariff actions the Administration has taken:
Under Section 232 of the Tariff Expansion Act of 1962, as of March 23, 2018, the president imposed a 25% duty on certain steel products and a 10% duty on certain aluminum products. The items tagged are described by specific Harmonized Tariff Schedule of the United States (HTS-US) Code numbers. Products from certain countries have been exempt until April 30, 2018 and they may be exempt in the future – we don’t know yet.
Under Section 201 of the Tariff Act of 1901 1, the President imposed tariff rate quotas on solar panels and washing machines from all countries. These duties were imposed to offset what was determined to be huge increases in import quantities. The duties are very large, on the order of 20% or 30% depending on the product, and they go up after the minimum quota limit is imported. Who suffers the pain? U.S. consumers, who pay more for imported washing machines and solar panels. This makes solar panels more expensive and less attractive as an alternative energy solution and inhibits the development and implementation of new solar technology solutions,
Manufacturers can file a petition to have their product excluded from the list if they can show it is not made in the U.S., or is necessary for the national defense or for some other good reason. There is a process for domestic producers to challenge the request and there is a process for review of each petition – but no review has yet taken place.
Metals & Manufacturing Outlook Who suffers the pain? U.S. manufacturers, who now pay more for the steel and aluminum they use to make their products, and any purchaser of those parts or products, including other downstream manufacturers, U.S. consumers, as well as local, municipal, town, city, county, and state governments, and the federal government itself. Under Section 301 of the Tariff Act of 1930, the Administration has posted a list of 1300 articles which could be subject to 25% duty increases on $50 billion of goods from China. People can file petitions to have their articles excluded from the list. There will be a public hearing for comments. China has developed their own list that will increase duties of U.S. goods imported into China that is estimated at $150 billion. The U.S. has ratcheted up their duty number to match the Chinese $150 billion, and China has responded that they will double their number to $300 billion. Ah, but of course, this is not a trade war. Who suffers the pain? U.S. farmers, particularly in pork and soy beans where a glut and price collapse could form as early as June, more manufacturers, and even more U.S. consumers, as well as many of the Chinese people. And to the lay person, this simply makes no sense to anyone, but get ready for inflation and quite possibly the tipping point of a great economy suddenly headed South! Reacting to this nonsense is a new group, The Coalition of American Metal Manufacturers and Users, recently formed by the:
• Industrial Fasteners Institute, • National Tooling & Machining Association, • North American Association of Food Equipment Manufacturers, • Precision Machined Parts Association, • Precision Metalforming Association, and • American Wire Producer Association Their spokesperson, Paul Nathanson, recently stated that, “These tariffs will do nothing to uphold their stated purpose of protecting U.S. national security. They will instead hurt U.S. manufacturers in the near term by raising the price of essential inputs they need to make finished products, and do long-term harm to domestic steel producers by eroding their own customer base.” The Coalition contends that tariffs are taxes which should be imposed by Congress, and in fact, tariffs are taxes – consumption taxes. The “conventional wisdom” is that tariffs protect domestic manufacturers against overseas competitors who can produce and deliver goods at lesser prices, but often are able to because they are subsidized by their own governments. Unfortunately, what conventional wisdom often reveals is incredible folly, so one has to ask, do tariffs work?
A Brief History of U.S. Tariffs ‘Those who do not learn history are doomed to repeat it.’ – George Santayana Let’s go back to the first president who thought tariffs were a sound practice, which happens to be
19
the first president of the United States, George Washington. One of the first acts of Congress Washington signed was a tariff among whose stated purpose was “the encouragement and protection of manufactures.” In his 1790 State of the Union Address, Washington justified his tariff policy for national security reasons: “A free people ought not only to be armed, but disciplined; to which end a uniform and welldigested plan is requisite; and their safety and interest require that they should promote such manufactories as tend to render them independent of others for essential, particularly military, supplies.” 2 Since then, other presidents have supported and/or tried the same tactic, and history does not seem to indicate very favorable results for the populace although this form of taxation did feed the coffers of the U.S. government out of the pockets of the populace. These presidents include, but are not limited to, Thomas Jefferson, Andrew Jackson, James Monroe, Abraham Lincoln, William McKinley, Theodore Roosevelt, Herbert Hoover, George W. Bush, Barack Obama, and Donald J. Trump. Smoot-Hawley Tariff Act, formally United States Tariff Act of 1930, also called Hawley- Smoot Tariff Act, signed into law by President Herbert Hoover, had been incorrectly blamed by some for causing The Great Depression. While this has been debunked, there is little doubt that the tariffs prolonged The Great Depression. More recently, the 8-30% steel tariff imposed by President George W. Bush on March 20, 2002 and reversed December 4, | April 2018
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Metals & Manufacturing Outlook
2003 that is widely considered the cause of the loss of 200,000 jobs in the U.S. and a softening of the U.S. GDP. President Obama tried a 35% tire tariff in 2009 in an effort to boost the domestic tire industry because too many Chinese tires were flooding the U.S. market. While President Obama declared that over a thousand U.S. jobs had been saved, a 2012 Peterson Institute study estimated that the price increase of non-Chinese tire imports was $817 million, and domestic producers’ price increases of $295 million resulted in each of the 1,200 saved jobs costing $900,000 each, with that $1.112 billion total cost being borne by U.S. consumers of vehicle tires, reducing other retail spending which cost that sector 3,700 jobs. The end result was a net loss of 2,500 jobs at a totally unnecessary cost of $1.112 billion, but the U.S. government and other countries selling tires to the U.S., like
Canada, South Korea, Japan, Mexico, and Taiwan, all made out like a bandits. Now we have tariffs being imposed by President Donald J. Trump as if he has some magic formula that at least 10 other presidents did not have before him. But we have something worse – we have Administration officials and advisors, including Trump’s top economic advisor Larry Kudlow, flatly stating that the tariffs imposed on March 23, 2018, have not yet taken effect when, in fact, U.S. Customs is collecting tariffs from customs brokers who represent their clients importing goods from non-exempt countries, especially China. According to Bob Silverman, partner with Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt, one of the nation’s largest law firms devoted exclusively to international tradeand customs matters, when asked directly on
21
Manufacturing Talk Radio if tariffs were being collected by U.S. Customs, replied, “Definitely – if your steel or aluminum product covered by one of these tariff provisions from a country that was not excluded was imported on or after March 23, they are definitely collecting custom duty.” These tariffs, in conjunction with President Trump’s efforts to renegotiate NAFTA or scrap it, his withdrawal from the TransPacific Partnership (TPP), then comments to reconsider TPP, soon followed by his comments not to reconsider TPP, have heads spinning among our allies and international trading partners around the world. Perhaps this is President Trump’s secret to negotiations, throwing everything into disarray and then sorting through the chaos until an agreement he will approve is formed from the ether. In the meantime, domestic U.S. | April 2018
22
Metals & Manufacturing Outlook
steel and aluminum producers are raising their prices rapidly and dramatically as manufacturers using steel and aluminum for production inputs shift their purchasing from overseas suppliers to domestic producers, causing lead times to extend and shortages to occur that will clearly hamper the production of goods in a favorable economy – precisely the same thing that occurred in 2003. There are already reports of manufacturers being unable to source certain steel alloys in the U.S. where they have not been produced in decades. In addition, those tariff costs that cannot be passed on to users or consumers will be offset just as they were in 2002-2003, by reducing overhead through job reductions since wages are the next largest cost on a company’s bottom line. Sadly, steel producers are firing up old, less efficient steel mills with little indication that they
| April 2018
will build new, more efficient mini-mills to protect the steel and aluminum for our national defense, or become able to compete in the future on the world stage when the tariffs falter and most likely will be withdrawn, but perhaps not before the U.S. economy crosses its tipping point and shifts from expansion into contraction. Unless President Trump pulls off something no other president has done before him, he will get the same results of a cooling economy nowhere close to his campaign rhetoric of 4% GDP, mounting inflation, and increasing Fed interest rates that feed the vicious cycle that further cools the economy and accelerates the contraction. All of this being said, there must have been other ways to deal with China’s theft of U.S. intellectual property and the trade imbalance besides a mechanism that has
repeatedly failed in the past and punishes the little guy across America, but it remains to be seen how it all plays out with the Administration’s approach of throwing the baby out with the bath water. Tim Grady is an author, writer, public speaker, Editor-in-Chief of Metals & Manufacturing Outlook ezine, Executive Producer and co-host of Manufacturing Talk Radio. He can be reached at execprod@mfgtalkradio.com. 1. This Act is also known as the SmootHawley Tariff Act, formally United States Tariff Act of 1930, also called HawleySmoot Tariff Act, U.S. legislation (June 17, 1930) that raised import duties to protect American businesses and farmers during the Great Depression. 2 https://en.wikipedia.org/wiki/Tariffs_ in_United_States_history#George_ Washington
Metals & Manufacturing Outlook
23
THE INSTITUTE FOR SUPPLY MANAGEMENT’S MANUFACTURING REPORT ON ® BUSINESS
BREAKING NEWS
ISM PMI at 57.3% ISM PMI for the past 5 years
| April 2018
24
Metals & Manufacturing Outlook
PMI® at 57.3% New Orders, Production, and Employment Growing Supplier Deliveries Slowing at Faster Rate; Backlog Growing Raw Materials Inventories Growing; Customers’ Inventories Too Low Prices Increasing at Faster Rate; Exports and Imports Growing (Tempe, Arizona) — Economic activity in the manufacturing sector expanded in April, and the overall economy grew for the 108th 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 April PMI® registered 57.3 percent, a decrease of 2 percentage points from the March reading of 59.3 percent. The New Orders Index registered 61.2 percent, a decrease of 0.7 percentage point from the March reading of 61.9 percent. The Production Index registered 57.2 percent, a 3.8 percentage point decrease compared to the March reading of 61 percent. The Employment Index registered 54.2 percent, a decrease of 3.1 percentage points from the March reading of 57.3 percent. The Supplier Deliveries Index registered 61.1 percent, a 0.5 percentage point increase from the March reading of 60.6 percent. The Inventories Index registered 52.9 percent, a decrease of 2.6 percentage points from the March reading of 55.5 percent. The Prices Index registered 79.3 percent in April, a 1.2 percentage point increase from the March reading of 78.1 percent, indicating higher raw materials prices for the 26th consecutive month. Comments from the panel reflect continued expanding business strength. Demand remains strong, with the New Orders Index at 60 or above for the 12th straight month, and the Customers’ Inventories Index remaining at low levels. The Backlog of Orders Index continued expanding, with its highest reading since May 2004, when it registered 63 percent. Consumption, described as production and employment, continues to expand, but has been restrained by labor and skill shortages. Inputs, expressed as supplier deliveries, inventories and imports, declined overall, due primarily to inventory reductions likely led by supplier performance restrictions. Lead time extensions, steel and aluminum disruptions, supplier labor issues, and transportation difficulties continue. Export orders remained strong. The Prices Index is at its highest level since April 2011, when it registered 82.6 percent. In April, price increases occurred across 17 of 18 industry sectors. Demand remains robust, but the nation’s employment resources and supply chains continue to struggle.” Of the 18 manufacturing industries, 17 reported growth in April, in the following order: Wood Products; Electrical Equipment, Appliances & Components; Fabricated Metal Products; Transportation Equipment; Furniture & Related Products; Paper Products; Machinery; Primary Metals; Nonmetallic Mineral Products; Chemical Products; Computer & Electronic Products; Petroleum & Coal Products; Food, Beverage & Tobacco Products; Plastics & Rubber Products; Printing & Related Support Activities; Miscellaneous Manufacturing; and Apparel, Leather & Allied Products. No industry reported a decrease in PMI® in April compared to March. WHAT RESPONDENTS ARE SAYING “We are seeing strong sales in the U.S., Europe and Asia.” (Chemical Products) “Business is off the charts. This is causing many collateral issues: a tightening supply chain market and longer lead times. Subcontractors are trading capacity up, leading to a bidding war for the marginal capacity. Labor remains tight and getting tighter.” (Transportation Equipment) “Shortages of trucks and drivers has impacted delivery times.” (Food, Beverage & Tobacco Products) “The recent steel tariffs have made it difficult to source material, and we have had to eliminate two products due to availability and cost of raw material.” (Fabricated Metal Products) “Demand is up for products. Commodity pricing for steel and other materials increased due to the proposed tariffs. We are seeing commodity futures coming down. A lot of suppliers are asking for increases, and the team is battling those requests.” (Machinery) | April 2018
Metals & Manufacturing Outlook
25
“[The] 232 and 301 tariffs are very concerning. Business planning is at a standstill until they are resolved. Significant amount of manpower [on planning and the like] being expended on these issues.” (Miscellaneous Manufacturing) “Production orders at this time are still strong and being driven partially by construction factors and customers purchasing ahead to avoid potential price increases.” (Plastics & Rubber Products) “The general outlook for 2018 remains positive and upbeat as we see continued signs of a growing economy and investment in housing and infrastructure.” (Nonmetallic Mineral Products) “Business conditions have been good; order book is full and running around 98 percent capacity.” (Primary Metals) “Backorders remain strong. New order rate exceeds shipment rate.” (Computer & Electronic Products)
Manufacturing at a Glance April 2018 Index Series Index Apr Series Index Mar Change Trend* (Months)
Percentage Point Change
PMI®
57.3 59.3 -2.0 Growing
Slower
20
New Orders 61.2 61.9 -0.7 Growing
Slower
28
Production
57.2 61.0 -3.8 Growing
Slower
20
Employment 54.2 57.3 -3.1 Growing
Slower
19
Supplier Deliveries 61.1 60.6 +0.5 Slowing Inventories
52.9 55.5 -2.6 Growing
Customers’ Inventories
Backlog of Orders
Slower
4 Slower
19
Faster 26
62.0 59.8 +2.2 Growing
New Export Orders 57.7 58.7 -1.0 Growing Imports
Rate of
Faster 19
44.3 42.0 +2.3 Too Low
Prices 79.3 78.1 +1.2 Increasing
Direction
57.8 59.7 -1.9 Growing
Faster 15 Slower
Slower
OVERALL ECONOMY
Growing
Slower
108
Manufacturing Sector
Growing
Slower
20
26
15
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 | April 2018
26
Metals & Manufacturing Outlook
Aluminum (18); Caustic Soda (10); Copper (6); Corrugate (19); Diesel; Electrical Components; Freight (3); Pallets; Polypropylene; Steel — Hot Rolled (17); Steel – Scrap (5); Steel — Stainless; and Wood. Commodities Down in Price
Soybean Oil. Commodities in Short Supply
Capacitors (10); Electrical Components; Resistors (6); and Steel – Hot Rolled.
Note: The number of consecutive months the commodity is listed is indicated after each item. April 2018 Manufacturing Index Summaries PMI®
Manufacturing expanded in April as the PMI® registered 57.3 percent, a decrease of 2 percentage points from the March reading of 59.3 percent. “This indicates strong growth in manufacturing for the 20th consecutive month, led by continued expansion in new orders, production activity, employment and inventories, with suppliers continuing to struggle delivering to demand,” 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 April PMI® indicates growth for the 108th consecutive month in the overall economy and the 20th straight month of growth in the manufacturing sector. “The past relationship between the PMI® and the overall economy indicates that the PMI® for April (57.3 percent) corresponds to a 4.3 percent increase in real gross domestic product (GDP) on an annualized basis.” The Last 12 Months Month PMI® Apr 2018
57.3
Mar 2018
59.3
Feb 2018
60.8
Jan 2018
59.1
Dec 2017
59.3
Nov 2017
58.2
Oct 2017
58.5
Sep 2017
60.2
| April 2018
Metals & Manufacturing Outlook Aug 2017
59.3
Jul 2017
56.5
Jun 2017
56.7
May 2017
55.5
27
Average for 12 months – 58.4 High – 60.8 Low – 55.5 New Orders
ISM®’s New Orders Index registered 61.2 percent in April, which is a decrease of 0.7 percentage point when compared to the 61.9 percent reported for March, indicating growth in new orders for the 28th consecutive month. “New orders expansion continues at a strong pace — slower compared to March’s reading, but still at or above 60 percent for the 12th straight month. Customer inventories remain too low, and backlog expansion maintained high levels,” 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 April, listed in the following order: Wood Products; Furniture & Related Products; Plastics & Rubber Products; Nonmetallic Mineral Products; Transportation Equipment; Primary Metals; Paper Products; Electrical Equipment, Appliances & Components; Computer & Electronic Products; Fabricated Metal Products; Petroleum & Coal Products; Textile Mills; Chemical Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; and Machinery. The only industry reporting a decrease in new orders in April compared to March is Apparel, Leather & Allied Products. New Orders % Higher
% Same
% Lower
Apr 2018
42.4 49.5 8.1
+34.3 61.2
Mar 2018
43.3 48.0 8.6
+34.7 61.9
Feb 2018
40.6 50.9 8.5
+32.1 64.2
Jan 2018
35.2 54.3 10.5 +24.7 65.4
Net
Index
Production
ISM®’s Production Index registered 57.2 percent in April, which is a decrease of 3.8 percentage points when compared to the 61 percent reported for March, indicating growth in production for the 20th consecutive month. “Production expansion continues; however, the index fell below 60 for the first time in 10 months. Labor constraints and supply chain disruptions continue to prevent or limit maximum 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 April — listed in order — are: Furniture | April 2018
28
Metals & Manufacturing Outlook
& Related Products; Apparel, Leather & Allied Products; Electrical Equipment, Appliances & Components; Transportation Equipment; Printing & Related Support Activities; Nonmetallic Mineral Products; Fabricated Metal Products; Chemical Products; Primary Metals; Miscellaneous Manufacturing; Machinery; Computer & Electronic Products; Food, Beverage & Tobacco Products; Petroleum & Coal Products; and Plastics & Rubber Products. The only industry reporting a decrease in production in April compared to March is Paper Products. Production
% Higher
% Same
% Lower
Apr 2018
33.6 58.5 8.0
+25.6 57.2
Mar 2018
36.1 55.7 8.2
+27.9 61.0
Feb 2018
35.5 54.9 9.6
+25.9 62.0
Jan 2018
32.8 56.2 11.0 +21.8 64.5
Net
Index
Employment
ISM®’s Employment Index registered 54.2 percent in April, a decrease of 3.1 percentage points when compared to the March reading of 57.3 percent. This indicates growth in employment in April for the 19th consecutive month. “Employment expansion continues at slower rates due to companies struggling to hire skilled workers. Many respondents continue to see the labor market as a constraint to their production and their suppliers’ production,” 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 12 reporting employment growth in April — listed in order — are: Paper Products; Miscellaneous Manufacturing; Fabricated Metal Products; Machinery; Nonmetallic Mineral Products; Petroleum & Coal Products; Food, Beverage & Tobacco Products; Computer & Electronic Products; Transportation Equipment; Chemical Products; Primary Metals; and Electrical Equipment, Appliances & Components. The three industries reporting a decrease in employment in April compared to March are: Textile Mills; Printing & Related Support Activities; and Furniture & Related Products. Employment % Higher
% Same
% Lower
Apr 2018
23.1 66.8 10.2 +12.9 54.2
Mar 2018
22.9 66.3 10.8 +12.2 57.3
Feb 2018
28.4 61.8 9.8
Jan 2018
17.6 70.6 11.8 +5.8 54.2
Net
Index
+18.7 59.7
Supplier Deliveries
The delivery performance of suppliers to manufacturing organizations was slower in April, as the Supplier Deliveries Index registered 61.1 percent. This is 0.5 percentage point higher than the 60.6 percent reported for March. “This is the 19th straight month of slowing supplier deliveries, a continuing constraint to production growth. 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,” says Fiore. A reading below 50 percent indicates faster deliveries, while a reading above 50 percent indicates slower deliveries.
| April 2018
Metals & Manufacturing Outlook
29
The 16 industries reporting slower supplier deliveries in April — listed in order — are: Apparel, Leather & Allied Products; Machinery; Fabricated Metal Products; Textile Mills; Printing & Related Support Activities; Primary Metals; Furniture & Related Products; Paper Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Chemical Products; Electrical Equipment, Appliances & Components; Transportation Equipment; Nonmetallic Mineral Products; Plastics & Rubber Products; and Miscellaneous Manufacturing. No industries reported faster supplier deliveries in April compared to March. Supplier Deliveries % Slower
% Same
Apr 2018
25.6 71.3 3.2
+22.4 61.1
Mar 2018
28.4 65.9 5.7
+22.7 60.6
Feb 2018
26.2 70.4 3.4
+22.8 61.1
Jan 2018
23.5 71.3 5.2
+18.3 59.1
% Faster
Net
Index
Inventories*
The Inventories Index registered 52.9 percent in April, which is a decrease of 2.6 percentage points when compared to the 55.5 percent reported for March, indicating raw materials inventories grew in April. “Suppliers were not able to maintain desired inventory expansion levels consistent with production demands for the second straight month. Broad supplier lead-time extensions and freight uncertainties will continue to impact inventory accounts,” 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 eight industries reporting higher inventories in April — listed in order — are: Wood Products; Electrical Equipment, Appliances & Components; Printing & Related Support Activities; Paper Products; Petroleum & Coal Products; Transportation Equipment; Chemical Products; and Food, Beverage & Tobacco Products. The four industries reporting lower inventories in April are: Textile Mills; Furniture & Related Products; Nonmetallic Mineral Products; and Miscellaneous Manufacturing. Six industries reported no change in raw materials inventories in April compared to March. Inventories
% Higher
% Same
% Lower
Apr 2018
20.4 65.0 14.6 +5.8 52.9
Mar 2018
22.1 66.7 11.1 +11.0 55.5
Feb 2018
23.8 66.0 10.3 +13.5 56.7
Jan 2018
24.4 55.7 19.9 +4.5 52.3
Net
Index
Customers’ Inventories*
ISM®’s Customers’ Inventories Index registered 44.3 percent in April, which is 2.3 percentage points higher than the 42 percent reported for March, indicating that customers’ inventory levels were still considered too low in April. “Customers’ inventory levels remain too low for the 19th consecutive month,” says Fiore.
The only manufacturing industry reporting customers’ inventories as too high during the month of April is Nonmetallic Mineral Products. The 12 industries reporting customers’ inventories as too low during April | April 2018
30
Metals & Manufacturing Outlook
— listed in order — are: Textile Mills; Apparel, Leather & Allied Products; Paper Products; Primary Metals; Machinery; Transportation Equipment; Plastics & Rubber Products; Electrical Equipment, Appliances & Components; Fabricated Metal Products; Computer & Electronic Products; Chemical Products; and Miscellaneous Manufacturing. Customers’ Inventories
% Reporting % Too High % About Right
Apr 2018
87
9.7
69.2 21.1 -11.4 44.3
Mar 2018
80
7.8
68.5 23.7 -16.0 42.0
Feb 2018
50
5.1
77.3 17.7 -12.6 43.7
Jan 2018
58
9.4
72.5 18.1 -8.7 45.6
% Too Low Net
Index
Prices*
The ISM® Prices Index registered 79.3 percent in April, an increase of 1.2 percentage points from the March level of 78.1 percent, indicating an increase in raw materials prices for the 26th consecutive month. In April, 61.2 percent of respondents reported paying higher prices, 2.6 percent reported paying lower prices, and 36.2 percent of supply executives reported paying the same prices as in March. The Prices Index is at its highest level since April 2011, when it registered 82.6 percent. “The increases in prices across all industry sectors continues. The Business Survey Committee noted price increases in metals (all steels, steel components, aluminum and copper), corrugate, wood, wood products and plastics. Shortages continue in electronics components,” 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 industries reported paying increased prices for raw materials in April, in the following order: Apparel, Leather & Allied Products; Textile Mills; Furniture & Related Products; Fabricated Metal Products; Paper Products; Electrical Equipment, Appliances & Components; Primary Metals; Machinery; Printing & Related Support Activities; Petroleum & Coal Products; Nonmetallic Mineral Products; Food, Beverage & Tobacco Products; Plastics & Rubber Products; Computer & Electronic Products; Miscellaneous Manufacturing; Chemical Products; and Transportation Equipment. No industry reported a decrease in prices in April compared to March. Prices % Higher
% Same
% Lower
Apr 2018
61.2 36.2 2.6
+58.6 79.3
Mar 2018
57.1 42.1 0.8
+56.2 78.1
Feb 2018
51.0 46.4 2.7
+48.3 74.2
Jan 2018
46.6 52.1 1.3
+45.3 72.7
Net
Index
Backlog of Orders*
ISM®’s Backlog of Orders Index registered 62 percent in April, which is 2.2 percentage points higher than the 59.8 reported in March, indicating growth in order backlogs for the 15th consecutive month. “Backlog expansion continued during the period, with the index reaching its highest level since May 2004, when it registered 63 percent. Strong backlog, low levels of customer inventory and continued strong new order expansion indicates that production requirements should remain robust through Q2,” says Fiore.
| April 2018
Metals & Manufacturing Outlook
31
The 16 industries reporting growth in order backlogs in April — listed in order — are: Wood Products; Paper Products; Plastics & Rubber Products; Textile Mills; Petroleum & Coal Products; Apparel, Leather & Allied Products; Electrical Equipment, Appliances & Components; Furniture & Related Products; Printing & Related Support Activities; Transportation Equipment; Machinery; Computer & Electronic Products; Chemical Products; Fabricated Metal Products; Primary Metals; and Food, Beverage & Tobacco Products. The only industry reporting a decrease in order backlogs during April is Miscellaneous Manufacturing. Backlog of Orders* % Reporting % Higher
% Same
Apr 2018
88
32.3 59.3 8.3
Mar 2018
87
32.1 55.4 12.5 +19.7 59.8
Feb 2018
88
31.8 56.0 12.2 +19.6 59.8
Jan 2018
89
27.8 56.8 15.4 +12.5 56.2
% Lower
Net
Index
+24.0 62.0
New Export Orders* ISM®’s New Export Orders Index registered 57.7 percent in April, a decrease of 1 percentage point when compared to the 58.7 percent reported for March, indicating growth in new export orders for the 26th consecutive month. “All six big industry sectors continued to expand export activity during the period,” says Fiore. The 14 industries reporting growth in new export orders in April — listed in order — are: Wood Products; Petroleum & Coal Products; Nonmetallic Mineral Products; Furniture & Related Products; Computer & Electronic Products; Machinery; Paper Products; Electrical Equipment, Appliances & Components; Transportation Equipment; Plastics & Rubber Products; Food, Beverage & Tobacco Products; Chemical Products; Miscellaneous Manufacturing; and Fabricated Metal Products. No industries reported a decrease in new export orders in April as compared to March. New Export Orders* % Reporting % Higher
% Same
Apr 2018
79
18.6 78.2 3.2
+15.4 57.7
Mar 2018
80
22.6 72.0 5.3
+17.3 58.7
Feb 2018
79
27.9 69.8 2.3
+25.6 62.8
Jan 2018
79
20.7 78.2 1.1
+19.6 59.8
% Lower
Net
Index
Imports* ISM®’s Imports Index registered 57.8 percent in April, a decrease of 1.9 percentage points when compared to the 59.7 percent reported for March, indicating that imports grew in April for the 15th consecutive month. “Imports continued to expand to support production demand, but at slower expansion rates,” says Fiore. The 12 industries reporting growth in imports during the month of April — listed in order — are: Apparel, Leather & Allied Products; Furniture & Related Products; Textile Mills; Petroleum & Coal Products; Electrical Equipment, Appliances & Components; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; Transportation Equipment; Chemical Products; Machinery; Primary Metals; and Computer & Electronic Products. The two industries that reported a decrease in imports during April compared to March are: Plastics & Rubber Products; and Fabricated Metal Products. Imports
% Reporting % Higher
% Same
Apr 2018
86
21.6 72.4 6.0
+15.6 57.8
Mar 2018
84
26.1 67.1 6.7
+19.4 59.7
% Lower
Net
Index
| April 2018
32
Metals & Manufacturing Outlook
Feb 2018
82
24.5 71.9 3.5
+21.0 60.5
Jan 2018
81
22.5 71.6 5.8
+16.7 58.4
*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 increased in April by six days, to 145 days. Average lead time for Production Materials increased by four days, to 67 days. Average lead time for Maintenance, Repair and Operating (MRO) Supplies increased by one day, to 35 days. “Capital expenditure lead time and production material lead-time increases rebounded during April. This is in line with general comments received during March and reflects continued strong demand in both sectors of the manufacturing economy,” says Fiore. Percent Reporting Capital Expenditures Hand-to-Mouth Year + Average Days
30 Days
60 Days
Apr 2018
21
5
10
21
21
22
145
Mar 2018
22
5
12
15
29
17
139
Feb 2018
21
6
11
17
23
22
145
Jan 2018
18
6
11
18
25
22
150
Production Materials Hand-to-Mouth Year + Average Days
30 Days
60 Days
Apr 2018
10
35
28
17
7
3
67
Mar 2018
13
37
23
18
6
3
63
Feb 2018
12
37
27
14
7
3
64
Jan 2018
11
40
25
16
6
2
60
MRO Supplies Hand-to-Mouth Year + Average Days
30 Days
60 Days
Apr 2018
35
41
15
7
2
0
35
Mar 2018
39
37
17
4
3
0
34
Feb 2018
33
42
17
6
2
0
33
Jan 2018
33
42
15
8
2
0
34
90 Days
6 Months
1
90 Days
6 Months
1
90 Days
6 Months
1
About This Report DO NOT CONFUSE THIS NATIONAL REPORT with the various regional purchasing reports released across the country. The national report’s information reflects the entire U.S., while the regional reports contain primarily regional data from their local vicinities. Also, the information in the regional reports is not used in calculating the results of the national report. The information compiled in this report is for the month of April 2018. | April 2018
Metals & Manufacturing Outlook
33
The data presented herein is obtained from a survey of manufacturing supply executives based on information they have collected within their respective organizations. ISM® makes no representation, other than that stated within this release, regarding the individual company data collection procedures. The data should be compared to all other economic data sources when used in decision-making. Data and Method of Presentation The Manufacturing ISM® Report On Business® is based on data compiled from purchasing and supply executives nationwide. The composition of the Manufacturing Business Survey Committee is stratified according to the North American Industry Classification System (NAICS) and each of the following NAICSbased industry’s contribution to gross domestic product (GDP): Food, Beverage & Tobacco Products; Textile Mills; Apparel, Leather & Allied Products; Wood Products; Paper Products; Printing & Related Support Activities; Petroleum & Coal Products; Chemical Products; Plastics & Rubber Products; Nonmetallic Mineral Products; Primary Metals; Fabricated Metal Products; Machinery; Computer & Electronic Products; Electrical Equipment, Appliances & Components; Transportation Equipment; Furniture & Related Products; and Miscellaneous Manufacturing (products such as medical equipment and supplies, jewelry, sporting goods, toys and office supplies). The data are weighted based on each industry’s contribution to GDP. Beginning in January 2018, computation of the indexes is accomplished utilizing unrounded numbers. Survey responses reflect the change, if any, in the current month compared to the previous month. For each of the indicators measured (New Orders, Backlog of Orders, New Export Orders, Imports, Production, Supplier Deliveries, Inventories, Customers’ Inventories, Employment and Prices), this report shows the percentage reporting each response, the net difference between the number of responses in the positive economic direction (higher, better and slower for Supplier Deliveries) and the negative economic direction (lower, worse and faster for Supplier Deliveries), and the diffusion index. Responses are raw data and are never changed. The diffusion index includes the percent of positive responses plus one-half of those responding the same (considered positive). The resulting single index number for those meeting the criteria for seasonal adjustments (PMI®, New Orders, Production, Employment and Supplier Deliveries) is then seasonally adjusted to allow for the effects of repetitive intra-year variations resulting primarily from normal differences in weather conditions, various institutional arrangements, and differences attributable to non-moveable holidays. All seasonal adjustment factors are subject annually to relatively minor changes when conditions warrant them. The PMI® is a composite index based on the diffusion indexes of five of the indexes with equal weights: New Orders (seasonally adjusted), Production (seasonally adjusted), Employment (seasonally adjusted), Supplier Deliveries (seasonally adjusted), and Inventories. Diffusion indexes have the properties of leading indicators and are convenient summary measures showing the prevailing direction of change and the scope of change. A PMI® reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally declining. A PMI® above 43.2 percent, over a period of time, indicates that the overall economy, or gross domestic product (GDP), is generally expanding; below 43.2 percent, it is generally declining. The distance from 50 percent or 43.2 percent is indicative of the extent of the expansion or decline. With some of the indicators within this report, ISM® has indicated the departure point between expansion and decline of comparable government series, as determined by regression analysis. The Manufacturing ISM® Report On Business® survey is sent out to Manufacturing Business Survey Committee respondents the first part of each month. Respondents are asked to ONLY report on information for the current month. ISM® receives survey responses throughout most of any given month, with the majority of respondents generally waiting until late in the month to submit responses in order to give the most accurate picture of current business activity. ISM® then compiles the report for release on the first business day of the following month. The industries reporting growth, as indicated in the Manufacturing ISM® Report On Business® monthly report, are listed in the order of most growth to least growth. For the industries reporting contraction or decreases, those are listed in the order of the highest level of contraction/decrease to the least level of contraction/decrease. Responses to Buying Policy reflect the percent reporting the current month’s lead time, the approximate weighted number of days ahead for which commitments are made for Capital Expenditures; Production Materials; and Maintenance, Repair and Operating (MRO) Supplies, expressed as hand-to-mouth (five days), 30 days, 60 days, 90 days, six months (180 days), a year or more (360 days), and the weighted average number of days. These responses are raw data, never revised, and not seasonally adjusted since there is no significant seasonal pattern.
| April 2018
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