Tuesday, September 4, 2018

Like We Said

This morning's release of the Institute for Supply Management's Manufacturing Survey echoes the sentiment we expressed in this week's message

From our summary:
General conditions remain notably positive and, therefore, supportive of growth in equities (financials, industrials and materials in particular) going forward. We, however, see the present setup deteriorating in accelerated fashion if/when it becomes clear that the "trade war" is to be a protracted affair.
In terms of general conditions remaining positive, the ISM Manufacturing Index came in at an impressive 61.3; blowing away the 57.7 consensus estimate. 

Here's the good stuff respondents are saying:
Comments from the panel reflect continued expanding business strength. Demand remains strong, with the New Orders Index at 60 percent or above for the 16th straight month, and the Customers’ Inventories Index remaining low. The Backlog of Orders Index continued to expand, at higher levels compared to the previous month. Consumption improved, with production and employment continuing to expand, at higher levels compared to July, despite shortages in labor and materials.
In terms of the setup deteriorating if the "trade war" continues, here's bad stuff:
Respondents are again overwhelmingly concerned about tariff-related activity, including how reciprocal tariffs will impact company revenue and current manufacturing locations. Panelists are actively evaluating how to respond to these business changes, given the uncertainty...
Here, form the report, is "what respondents are saying":   emphasis ours...
“Busy for new orders, but the cost of raw material chemicals keeps going up.” (Chemical Products)
“We have seen a slight uptick in international business. Suppliers do not seem to know how to handle the recently imposed tariffs. Most are waiting to re-evaluate potential price increases until September.” (Computer & Electronic Products)
“Generally high levels of demand continue, and [we are] planning for this elevated rate through the rest of the year.” (Transportation Equipment)
“Suppliers appear to be bracing us for cost increases, given increased talk of tariffs and inflation. We are budgeting for 2019 accordingly.” (Food, Beverage & Tobacco Products)
The toughest thing we deal with is the unknown. Dealing with tariffs on steel purchases and not knowing if or when they will end makes planning difficult. We are entering the period when we begin our pricing negotiations for next year and will likely treat the tariffs as if they will be here for the entire year. It’s challenging, but not insurmountable.” (Fabricated Metal Products)
“Business is positive, new equipment sales and inquiries are strong, and the parts business is strong. Raw material costs, especially steel, appear to be leveling off. Cost of manufactured components has also leveled off. Most suppliers are willing and able to suppress cost increases. Tariff impacts are still a concern.” (Machinery)
“Business continues to be strong. We anticipate growth in the next few months.” (Plastics & Rubber Products)
"Business conditions are strong. Orders are up. Purchase prices are up. Unemployment is down.” (Miscellaneous Manufacturing)
"Continued strong demand has most locations in a sold-out market, putting pressure on our facilities to produce and have strong uptime. Purchasing is under pressure to provide critical parts in a market where lead times have increased.” (Nonmetallic Mineral Products)
“Steel tariffs and their threats are putting upward pressure on downstream materials.” (Petroleum & Coal Products)

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