PMI Inches Down to 49.1%, But Storm Clouds Brewing

April 3, 2020
Despite a modest drop, the index indicates that the pandemic is having an impact on the supply chain and productivity.

This article appeared in Machine Design and has been published here with permission.

Perhaps the best news from the Institute for Supply Management’s March PMI report on manufacturing was that it wasn’t quite as bad as could have been expected.

A global pandemic and continuing concerns about supply chain viability and productivity has roiled the manufacturing sector for the past 90 days, but the PMI fell only 1.0 percentage point to 49.1%. While that points to contraction in manufacturing, it’s still not as sharp a decline as might have been anticipated.

But there are serious warning signs on the horizon, cautions Timothy R. Fiore, chairman of the ISM Manufacturing Business Survey Committee. “The Supplier Deliveries Index registered 65%, up 7.7 percentage points from the February reading of 57.3%, and limited the decrease in the composite PMI,Fiore said. “Supplier Deliveries is the only ISM Report On Business index that is inversed—a reading of above 50% indicates slower deliveries, which is typical as the economy improves and customer demand increases. However, the high index reading in March was primarily a product of coronavirus-related supply problems.”

The near-term outlook for the sector is shaky, as short-term delivery surges dissipate as the pandemic continues. “The coronavirus pandemic and shocks in global energy markets have impacted all manufacturing sectors,” Fiore said in a press release. “Among the six big industry sectors, Food, Beverage & Tobacco Products remains strongest, followed by Chemical Products, which in addition to the pharmaceutical component, is a significant contributor to the Food, Beverage & Tobacco Products Industry and beneficiary of low energy and feedstock prices. “Transportation Equipment and Petroleum & Coal Products are the weakest sectors,” Fiore added. “Sentiment regarding near-term growth this month is strongly negative, by a 2-to-1 ratio.”

While tariffs had been the primary issue concerning committee members for the past 18 months, the COVID-19 pandemic now has everyone’s attention. Among committee member comments:

  • “COVID-19 is impacting China’s raw material supply chain. We are now seeing revenue impact in that region. Our operations team is reviewing plans for spread of the virus.” (Computer & Electronic Products)
  • “The two main issues affecting our business [are] COVID-19 and the oil price war. We are in daily discussions and meeting constantly, updating tracking logs to document high risk concerns.” (Chemical Products)
  • “COVID-19 impact has extended to Europe and North America. The virus escalation is affecting our purchasing and logistics operations. We have incurred air-shipment and production interruptions due to shortages of raw materials and components.” (Transportation Equipment)
  • “We are experiencing a record number of orders due to COVID-19.” (Food, Beverage & Tobacco Products)
  • “World demand for petroleum products is declining, while supply is ramping up. We have lost supply chain visibility to certain locations.” (Petroleum & Coal Products)
  • “COVID-19’s spread in the U.S. may start impacting our domestic business. As for Asian suppliers, they are starting to get back up to speed.” (Fabricated Metal Products)
  • “COVID-19 has caused a 30% reduction in productivity in our factory.” (Machinery)
  • “A big part of our business is hospitality, and we are seeing demand drop and an increase in cancellations.” (Nonmetallic Mineral Products)
  • “All North American manufacturing plants have ceased operations or drastically scaled back as a result of customer plant closings and other responses to COVID-19.” (Plastics & Rubber Products)
  • “Volumes are down 4.3% and some areas of the supply chain are being affected by the coronavirus.” (Furniture & Related Products)

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