TRANSCRIPT
Lewis A Weiss (00:01.541)
Welcome everyone to another session with Manufacturing Talk Radio. And we’re here pleased to have Susan Spence, who’s the committee chair for ISM, the Institute for Supply Management, the manufacturing report, which everybody waits with bated breath. And they won’t be disappointed today because it’s the highest number since May of 2022. So Susan, welcome aboard.
Susan Spence, Chair, ISM Manuf (00:31.905)
Thanks. Hey Amy. Hey hey Lew. Happy to be here. Really happy to be giving some pretty good news with our report. So as you mentioned, the PMI is the highest since May of 2022. We came in at 55.6. we don’t always beat the consensus estimate, but we did this month. the estimate, I believe, from Wall Street Journal was fifty-four. So we’re you know we we’ve beat that. That’s great. as exciting as it is.
With a seven-month in a row of expansion and seven to nine months in factors like new orders, backlog production, I have been waiting for that employment number to breach 50, and indeed it did. And we have been able to have a number of 52.8 on employment. And that is finally an expansion after 34 months of consecutive contraction. And I think it’s 42 months of contraction.
So I’ve said
Lewis A Weiss (01:33.433)
Abe, can you bring up the chart? there you go.
Susan Spence, Chair, ISM Manuf (01:35.372)
Yeah, yeah, please bring up the chart. I have said throughout last year that I did not believe that companies were going to start hiring in the midst of tariff chaos, not knowing what the economic policy was going to be week to week, let alone month to month. Things settled down on that with the February ruling from SCOTUS. things are settling down more in my opinion with last Friday’s announcement of the ten to twelve percent tariffs for section, I believe it’s one thirty.
A surprise to anybody that got announced as soon as the SCOTUS ruling happened. More certainty on what’s going to happen with these manufacturers’ raw material prices means more comfort level in things like hiring. And then, of course, no one’s hiring without a strong order flow. So look at the numbers in the trend for things like you know, the demand inputs, new orders, customer backlog of orders, new export orders. New export orders taking a 4.5% leap is big.
You know, the only demand indicator not in contraction is customer inventory. And as a reminder, low is good means the customers have have used the inventory on the shelf and have to reorder. So really excited about that.
Lewis A Weiss (02:50.19)
Yeah.
Susan Spence, Chair, ISM Manuf (02:52.171)
Pricing, I’m excited that the trend downward. Again, we’re still in increases pricing, but we’re you know we’re we’re tamping down on the volatility every month. I think this is a third in a row where the increase is slowing down. I’ll take a pause and a breath there.
Lewis A Weiss (03:08.922)
Yeah.
Amy (03:11.041)
So Susan, you had mentioned that a lot of companies said that consumer inventories are still too low. Does that mean that we could see shortages or longer waits now for certain products coming in in the coming months?
Susan Spence, Chair, ISM Manuf (03:24.865)
Well, that’s already happening, but maybe not to the consumer. The the companies in our survey also in their sentiment about their general comments and sentiment, this month for the first time I measured the percent of negative comments in general related to lead time, and it was twenty-two percent. So if you made a negative comment, you know, one in four chance that it was about lead time. It was typically lead time as r you know, not only is
It’s short, but it’s up up in price. So if you’re in a sector making or or needing products like memory and circuit boards and things like that, and you’re competing with data centers who are buying everything up because they’re you know building these huge data centers and about to activate. one of the comments, it’s not the biggest sector, but electrical and appliances, right? And you know, it’s like okay, and and cars, autos in some cases. A few months ago, remember some
Amy (04:11.287)
Yeah.
Susan Spence, Chair, ISM Manuf (04:24.655)
Seeing a few comments about, you know, I can’t get sensors through the automobiles that we’re making because, you know, the data centers are buying them all up, right? so you know, you you you kind of see that. So if inventories are too low, I think more about that means that the customers have to order even if they were holding off because they didn’t know what the prices were gonna look like because of tariffs. So it’s it’s a good thing because it typically means means they’re hitting a trigger point where they have to reorder.
Amy (04:47.469)
Right.
Amy (04:54.764)
Okay. All right, great.
Lewis A Weiss (04:56.761)
There was there was one to to to one of your points there, there was an expression used by one of your responders about shuffl shuffling and shifting markets, which really says it all. I’ve never heard that expression before. That that’s a great one.
Susan Spence, Chair, ISM Manuf (05:08.961)
Yeah. Yeah. Yeah, it was a good a good one. Yeah that
Yeah, I mean I I try to pick comments that are representative of the general sentiment. So if you have if you have out of ten comments or out of a hundred comments, I’m making that number up. If sixty percent are positive and forty percent are negative, I’m gonna try to pick six and four, right? But sometimes there are comments like that, shifting and shuffling, or I crave the days of the coronavirus. It’s like what? But you know, looking under line you know, underlying another comment.
Amy (05:33.443)
Right.
Lewis A Weiss (05:42.723)
Yeah.
Susan Spence, Chair, ISM Manuf (05:45.654)
Comment I think it was primary metals. It’s not the biggest sector, but overall
the economy is strong but then there’s factors like pricing and and lead times and so those are important too because they if they highlight what the overall trend is then then it’s gonna make it in that report. And sometimes it’s just really interesting to remind our audience, you know, the sectors can be very different, but what’s been interesting about the last year, and this happened to be in a negative way, but the patterns were the same. You know, not hiring people because we don’t know what’s gonna happen
With economic policy and that’s driving pricing. you know, customers aren’t ordering because they just can’t take what we’d have to charge them because of what we’re having to pay for raw materials.
Amy (06:36.354)
Yeah.
Lewis A Weiss (06:36.633)
That’s that’s true, that’s true. And I talked to a lot of lot of people in manufacturing and being that I’m also from the metal sector, I talk to people from the metal sector, and they’re all saying the same thing. one in particular said that the they have the largest back order they’ve ever had. And that’s in a questionable or has been a questionable market.
Susan Spence, Chair, ISM Manuf (07:02.392)
Yeah.
Lewis A Weiss (07:02.869)
And yet they have the largest after fifty years they have the largest backlog they’ve ever had. So those are pretty good enthusiastic signs.
Susan Spence, Chair, ISM Manuf (07:08.322)
Yeah.
Yeah. And again, for sure, some’s pent-up demand, some is getting ahead of what we think the next tariff’s gonna be. I you know, I would imagine some of the ordering that happened in May and June was because people knew that 150 days was up in July and that was a time frame for the tariffs that were in place to run out, and we knew the administration, because they told us they would, they wanted to not have any daylight in between expiring and new, even if the percent you could tax was a whole lot lower.
Amy (07:41.742)
No.
Lewis A Weiss (07:41.775)
Yeah, and and taking into account season seasonability, this is the summer. This is August. And they’re record numbers. I mean, it it’s fabulous. Septemb I used to treat September on as the beginning of a marketing year. And we’re two months early.
Amy (07:49.08)
Yeah.
Susan Spence, Chair, ISM Manuf (07:59.682)
Yeah. Yeah. Yeah. Hopefully it won’t drop off. Yeah, just jinx us.
Amy (08:02.168)
Yeah.
Lewis A Weiss (08:04.919)
I I hope not. I hope not.
Amy (08:08.364)
So Susan, I I wanted to ask you, so we you know, we talked about how like pricing for manufacturers are still rising, though a little bit slower from last month. So when do those higher costs usually get passed on to consumers in the form of higher prices for cars and appliances and electronics or everyday household goods? Does that a timeline on that?
Susan Spence, Chair, ISM Manuf (08:29.005)
Yeah. You know it’s a great it’s a great it’s a great question and I I don’t know how to answer it for this reason.
The chaos ter the tariff chaos of last year had companies trying to figure out when to pass on and when to absorb. Right. And what was tough about that, in itself it’s tough, but when the tariff policy kept changing and folks were trying to, you know, and looking around at the competitors, who’s passing on and who’s not. And then you had inflation and then the war driving it up even further.
Amy (08:48.174)
Mm-hmm.
Susan Spence, Chair, ISM Manuf (09:09.041)
Further, you know, some of the companies like listen, I absorb I’m just sum you know, I’m summarizing. I I might have absorbed half that tariff increase, but now I’ve got oil through the roof and transportation through the roof, fertilizer. I can’t do that anymore, I gotta pass it on. So
It depends on the sector, but it also depends on the times, right? the qu the question is, if something’s passed on and then it comes down, will those companies pass on the lower prices? Well gas stations do after a period of time. But yeah, we’re speculating earlier. What what never does come back down?
Amy (09:31.121)
Yeah, yeah.
Amy (09:48.822)
Right.
Susan Spence, Chair, ISM Manuf (09:49.74)
There’s a whole psychology about okay, customers used to paying it, why would you go back to the way it was? Well there’s something called gouging that you can’t do, but
Amy (09:58.415)
Yeah, I think Lew talk and I were talking about that earlier. I think he he made a comment where it was, have you ever heard of a prescription price going down going down ever again? Or or airlines airline tickets. Prescription prices and airline tickets.
Susan Spence, Chair, ISM Manuf (10:09.889)
No only when I switch to generics. Yeah.
Yeah, I mean there’s there’s a story how true it is I don’t know about the whole bag fees. Whenever that started becoming a thing and it was supposed to be temporary and it’s like, wait a minute, this is a hell of a revenue stream and now the consumer’s used to it, they’re numb to it, right?
Amy (10:30.55)
Yeah. Yeah.
Lewis A Weiss (10:32.527)
And they don’t get any accolades for lowering prices from their customers.
Susan Spence, Chair, ISM Manuf (10:36.983)
Well, becau you know, because it’s a commodity and people are gonna shop for the lowest fare, whatever. Depends on how loyal you are to an airline. But the whole psychology is very interesting.
Lewis A Weiss (10:47.513)
One of the things in in your comments, responder comments about the domestic steel companies are beginning to price greedily. And that just opens the door for more imports.
Susan Spence, Chair, ISM Manuf (10:54.871)
Yeah.
Susan Spence, Chair, ISM Manuf (10:58.659)
Greedling. Yeah.
Susan Spence, Chair, ISM Manuf (11:05.823)
It could unless the unless the tariff makes it non economical. You know, there there’s a you know, there’s a a comment about, you know, I’m gonna charge whatever the market will bear as long as it’s legal.
You could argue that. you could also argue they’re making up for years when they weren’t making profit. I don’t I don’t know. I got asked earlier today, did you see the manufacturing footprint expand because of reshoring the way the administration said it would? It’s like not this group of companies, and this is not just a handful of companies, it’s hundreds and hundreds. it had the opposite in effect in some cases.
Lewis A Weiss (11:48.857)
And that’s what they’re talking about with regards to steel. because the steel market I sort of follow it from the distance and you know, they’re unabashedly raising prices. Yeah. That’s right. You you keep price testing, they call it.
Susan Spence, Chair, ISM Manuf (11:52.013)
Yeah.
Susan Spence, Chair, ISM Manuf (12:01.315)
‘Cause they can. Yeah. Yeah.
Susan Spence, Chair, ISM Manuf (12:08.417)
Yeah, well right, what will the market bear? Isn’t that what that means? Right. You know, I think about think about like auto industry and cars and you know, I was speculating at some of the commodities on the up in price list for like thirty-two months, you know, and how expensive is a new car. someone said something to me the other day and it just blew my mind. They said, My car’s not that old, but I can’t stand the low tech. I need to have Apple Car play Bluetooth enabled and I’m like, I I
Lewis A Weiss (12:11.151)
Yeah. Exactly.
Susan Spence, Chair, ISM Manuf (12:38.341)
would never thought that would be a thing, but h our car is in some cases, it’s gotta be as good as the phone. I’m on the road for two hours. I gotta be able to whatever. You know, I mean it’s not just talking on the phone, which I tend to like to do ’cause whatever, my you know, Pandora station keeps me entertained for only so long. But you think about technology and GPS and you know, I don’t wanna look down at my phone that’s got ways on it because I’m gonna take my eyes off the road. So what if my dashboard
Lewis A Weiss (12:40.987)
It is
Lewis A Weiss (12:49.243)
Yeah.
Susan Spence, Chair, ISM Manuf (13:08.881)
I had this in in Europe on a vacation I went to. It’s like a computer screen. It’s not distracting me from the view, but I glance for a millisecond versus where’d my phone go? You know? So upgrading your car because of tech versus it’s old. And and you know, I don’t know about y’all. I run my cars right into the ground. If they’re good cars, it’s like but now it’s like, yeah, yeah, I need I need something more textile.
Lewis A Weiss (13:19.195)
Yeah.
Lewis A Weiss (13:26.235)
Yeah.
Amy (13:34.263)
Yes. Tech seems to definitely be the driver for most people as far as anything at at this point, right? I know.
Susan Spence, Chair, ISM Manuf (13:40.131)
Pun intended, yeah. Yeah.
Amy (13:42.927)
I know. So just real last lack last quick question for you from me anyway, is looking ahead, what would you know, the ordinary person watch for in the next few months as these reports hopefully continue in a positive direction that would either signal better or tougher times? What would you watch for either either way?
Susan Spence, Chair, ISM Manuf (14:04.972)
Yeah.
I would look for employment to keep creeping up towards sixty. I would look for pricing to creep down toward sixty, right? and I would look for, if not a big increase every month, at least steady or up a half a point or more for the the demand factors like new orders and backlog and new export orders. If orders are flowing steadily enough and prices continue to settle down, meaning the increases are smaller.
Every month, then I think you’re going to continue to see an economy that’s stronger and stronger and stronger.
Lewis A Weiss (14:44.953)
Again to that point, Susan, this is the summer and it always picks up in September. So if it isn’t already factored in early in July and August, or is it going to take off again in September? So we’ll have to wait and see.
Susan Spence, Chair, ISM Manuf (15:04.141)
So our we have seasonality adjust factored in already. So that smooths it out. Yeah. Yeah. So not every one of these sub indexes has seasonality in it, but those that need it, we we do adjust it so that otherwise you’d see these, you know, huge highs and lows. So that’s already factored in for the indexes that need it. Yeah. Yeah.
Lewis A Weiss (15:11.054)
yeah.
Lewis A Weiss (15:22.458)
Yeah, right.
Lewis A Weiss (15:29.489)
Okay, sounds good. any final final words, Susan, before we wrap up?
Susan Spence, Chair, ISM Manuf (15:34.075)
nope, it was it was a pleasure reporting on this month and fingers crossed that we find our way out of the conflict in the Middle East and things settle down and you know, people are feeling
you know, better about the economy and you know, if you’re in a job where you think AI can impact it, please be thinking about how to upskill and you know, get ahead of that because it’s coming like the internet game and it’s you know, i it it’s it’s an accelerant to humanity, technology hopeful you know, some jobs will get replaced for sure, but you know, what can you do as an individual to keep your skills not only current but, you know, kinda on the forefront of that. I find the whole thing
Amy (15:57.485)
Yeah.
Susan Spence, Chair, ISM Manuf (16:18.563)
fascinating. 100% know that it’s easier when you’re retired and don’t have to really worry about that, but it impacts everybody. So hopefully in a positive way in your collective lives, I I hope.
Lewis A Weiss (16:31.023)
I’d like to mention to our listeners, if you like the show, give us a like, give us a review, give us subscribe, send donations. We all donations accepted.
Amy (16:37.742)
Subscribe.
Lewis A Weiss (16:44.563)
we have to pay Susan, I don’t know, a dollar thirty-eight, I think, for for your thirty minutes. thank you all. And again, hit that subscribe button or the like button, and we’ll see you in a couple of days when we have Steve the services report and we’ll talk to you then. Till then.
Amy (17:00.693)
Services report, yeah.
Susan Spence, Chair, ISM Manuf (17:08.269)
Thanks. Thanks, Amy and Lou.
Amy (17:10.361)
Thanks, Susan.
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