TRANSCRIPT
Lewis A. Weiss (00:03.355)
Good afternoon, everyone. Lew Weiss here and Amy Nicklaus here. And we are gonna be talking with Susan Spence, who’s the chair of the ISM Manufacturing Business Report. And welcome back, Susan.
Susan Spence, Chair, ISM Manuf (00:18.68)
Thank you, Lew, Amy, great to be with you.
Amy (00:21.575)
Great to see though.
Lewis A. Weiss (00:22.813)
we’re gonna be talking today about the new report, the May report for manufacturing, and in a couple of days we’re gonna be doing the report for services, which is also quite important. by the way, just to remind everybody, if you like the show, hit that like button. And or if you don’t like it, send us an email or a text and we’ll work it out for you. So let’s let’s do a show. Susan?
Give us some background on what’s going on.
Susan Spence, Chair, ISM Manuf (00:53.784)
Sure. we had
A positive report. I can say happily for the first time in the one year I’ve been doing it. I’m feeling more optimistic than I have in a year. And that is mostly because if you’ve noticed, not only are we at a 54, a four-year high in the PMI, but every index went in the right direction, even those that are still in contraction. our demand indicators are up across the board. Customer inventory.
Inventory is still in contraction, but that’s not a bad thing because it means that the customers need to boost their inventory by ordering more.
stuff. And you know, the things that struck me on the demand side, backlog is up too, but new export orders took a pretty nice leap at 2.7. we have had the fifth month of PMI expansion, the fifth month of new orders, the fifth month of backlog expansion, and the fourth month now of imports in expansion.
Lewis A. Weiss (01:58.937)
Susan, let me interrupt you. can we can we bring that chart up so our audience can see the numbers as you talk about them?
Susan Spence, Chair, ISM Manuf (02:08.651)
And yep, here we go. Thank you.
Lewis A. Weiss (02:10.576)
And here’s the numbers.
Susan Spence, Chair, ISM Manuf (02:12.769)
They are right, great. So just take a look at percentage point change. The only negative on there is prices coming down, thank God, a little bit, 82.1, not great. but everything up, you know, supplier deliveries is just unchanged. So that when I laid out this this particular chart and then I started reviewing the trends, you know, to me one or two points don’t make a trend, maybe not even three, but we’re in the fifth month in some cases, right? the seventh month for
Lewis A. Weiss (02:41.124)
Right, right.
Susan Spence, Chair, ISM Manuf (02:42.753)
production right and employment it’s getting toward 50 right so employment is still contracting but 2.2 percent jump is not small and boosting that is the sentiment on hiring versus managing down the workforce it’s back down to for every positive person saying I’m hiring there’s one that is not and I went back on the LinkedIn live that I just did moments ago
And it was April of twenty-five before that one-to-one ratio in hiring to managing workforce was that low. Or that even, let’s say. Right? So it’s been steadily the the positive comments being outweighed by negative, that that has been going away, and now we’re back to equilibrium. That’s a big deal because it tells me that the uncertainty that were brought about by the tariffs has settled down enough.
Amy (03:21.766)
Yeah, okay.
Susan Spence, Chair, ISM Manuf (03:42.496)
For these companies to say, okay, now we’re gonna backfill some people, and of course they’re seeing five months of new orders, five months of production, four months, you know, I’m sorry, five months of backlog. So that is meaningful and significant to me. And we can say we have a terrible situation with pricing. Of course we do, everyone’s feeling it. in as much as those price increases are due to the Middle East conflict, we have 43.
Three commodities on the up list. It was probably half of that just seven, you know, four months ago. I feel like once that conflict is resolved, and hopefully we’ll be soon within a couple of months. I think we see that starting to get better and we continue on our expansion. The worry, conversely, is that it’s months and months and months, and that the price increases and now the shortages of the supply chain could start choking off demand. Hopefully that won’t happen.
Lewis A. Weiss (04:40.698)
J just to go back on a point a moment ago about customer inventories, where there was a significant jump this past month, but it’s a good sign that customer inventories are down because if there’s any kind of blip in customer purchases, th they’re gonna be buying materials and chemicals and metals and so on and so forth. So that’s a good I think that’s a very good sign.
Susan Spence, Chair, ISM Manuf (05:03.629)
Right.
Susan Spence, Chair, ISM Manuf (05:07.017)
It is. It is good for the future. you know, it was in what the mid thirties, not too long ago. but the new orders weren’t flowing. It’s like, you know, these these guys aren’t replenishing their shelves. And I think a lot of that, that was pre-February. So I think a lot of that is, you know, just folks not knowing what’s gonna happen with cost of goods sold and the prices and people holding off. I mean transportation equipment more than more than once did
Did I see comments more than a couple months in a row about, you know, instead of replacing the fleet, there’s like one-for-one replacements, you know, for trucking, for instance. So, you know, capital equipment purchases weren’t happening because what if it’s tariffs? You know, last month it was Europe, this month it’s Australia, what if it’s Japan? You know, so uncertainty bred people standing in place and not doing anything. They’re not hiring, they’re not spending.
money, the order flow wasn’t happening. Once a big chunk of that got settled with the SCOTUS ruling, you start to see that order flow. Now we’ve got, you know, unfortunately the Middle East conflict that is driving prices up, but it didn’t look like it’s necessarily clamping down on demand. So I feel pretty confident that if that can end relatively soon and prices will die back down, then we we keep going.
Lewis A. Weiss (06:36.634)
So one of the things that I would think would concern responders and that is as we as we’ve already pointed out, about s supply chain disruption and about price stability or instability, and yet people are still out there buying. So are they just out of their minds and buying and spending like reckless drunks?
Susan Spence, Chair, ISM Manuf (07:00.845)
Yeah. Drunken sailors. Yeah, the consumers are have been resilient, not all of them of course. They they are, and I think that speaks to an underlying strong economy and you know, pretty good unemployment. It’s not, you know, unemployment is still decent, you know, seems like a converse, but
Lewis A. Weiss (07:07.098)
Yeah.
Amy (07:18.663)
So Susan, let me ask you that, you know, we’re seeing this consistent uptick and I know that it in the past a lot of the comments and continue to be
you know, the potential of what ifs, a lot of what ifs, a lot of uncertainty. What are you seeing? Obviously we’re still in the same position as we were a month ago, two months ago. We’re still seeing an uptick. Why do you think that that is, being, you know, that the situation is still really the same, but we are going, we’re still continuing the right direction.
Susan Spence, Chair, ISM Manuf (07:48.344)
No. I think it’s pent up demand. I think the
You know, the number of months that the demand indicators were not good, you know, starting last what, March or April, all the way through December. You know, I I think once the scot you know, the SCOTUS ruling happened in February, you know, there’s a window maybe before replacement tariffs rear their ugly head. That’s probably part of it, getting ahead of that. But, you know, there was not a lot of ordering going on relative to, you know, years past. So I think you
know starting with the January orders which were maybe replenishing shelves in the holiday as long as the cut you know American consumers are are buying and not changing their behavior all that much depending on their income bracket then orders will flow but I do think I think the uncertainty of the tariffs and the you know the not knowing what country is next and what commodity is next I think that was very very harmful and really damped things down. So once that was let’s
say mostly resolved for now anyway, then I think it just sprung loose the order book. You know, when the the the war and the pricing and now some supply shortages because of the Strait of Hormuz, I feel like it’s more temporary-ish.
than you know months and months and you know going on like eight nine months of you know what country is next in the in the list of you know tariffs and you know again it’s just think about you know it in when you have a conflict y especially in the Middle East we’ve seen it before you know what’s gonna happen it’s gonna hurt
Susan Spence, Chair, ISM Manuf (09:36.381)
relatively short term though, unless that conflict goes on for months and years, right? Which hopefully it’s not gonna happen.
Amy (09:39.772)
Right.
Amy (09:43.676)
Yeah. So it sounds like I mean for no, I was gonna say from like the
Lewis A. Weiss (09:44.804)
We Victoria I go ahead, Amy.
Amy (09:51.27)
you know, the layman’s perspective, I guess. For me anyway, what it sounds like is, you know, what the goal was was really to bring manufacturing back and get it to be a much stronger into a much stronger place. And while there seems to be a lot of uncertainty and growing pains, that is what’s happening. It looks like that’s what’s happening. Even though we have some of this additional
turmoil that we, you know, obviously it could potentially be short term. Is that
Susan Spence, Chair, ISM Manuf (10:25.483)
You know, I gotta say, I am not seeing it happen from this group of panelists. I do not see comments and there’s four, five, six hundred comments a month I read through, and you know, in general production, demand hiring orders. I don’t see yeah, we’re we’re building new factories. I’m I’m just not seeing it. Doesn’t mean it’s not happening in other areas, but
Our panelists tell us by and large that has not happened. And in some, you know, in some cases, I remember a comment, probably it was from October, November, that says it’s still cheaper to buy my goods from China. I just it just eats into my profit margin, but it’s still cheaper. Or, you know, we aren’t gonna hire with all this uncertainty. This is months ago, with all this uncertainty. And so, you know, the opposite is happening. We’re just holding still, and we may be closing factories, right? So
Lewis A. Weiss (11:18.32)
Referring referring back to the graph that’s up on this on your screen, as a manufacturing person that where I come from, I find that the relationship between new orders and backlog is always very interesting. because you would think when the back orders go up that production might slow down. which is not the case. Back orders did increase and production
increased also. So I find that a very good indicator for a longer term that that those new the new production numbers it being supported by the backlog, it to me indicates that next month you’re gonna see that’s the production being good. Back orders you don’t know for sure, but production will be good.
Susan Spence, Chair, ISM Manuf (11:48.971)
Yeah. Yeah.
Susan Spence, Chair, ISM Manuf (11:54.444)
Yeah.
Susan Spence, Chair, ISM Manuf (12:07.489)
Yeah, I think so.
Susan Spence, Chair, ISM Manuf (12:11.691)
Yeah, and you know, I think in some cases there’s capacity, there’s been open capacity here. Although in in December I think I’m gonna we’ll have to go back and look at the number, but I think the manufacturing capacity was like in the low eighties. So they had some room because new orders were falling off.
Lewis A. Weiss (12:29.52)
Well I did read today that I think that the utilization number is seventy seven percent right now. So Yeah, absolutely. Absolutely. So
Susan Spence, Chair, ISM Manuf (12:34.837)
Okay. Well that’s pretty that’s pretty low relatively, right? Yeah. Yeah.
Yeah. So yeah, that that may very well be true. So they can handle more orders and you know and and you know, I like to kind of plot all these things in conjunction to say, okay, what’s the lag time between new orders and production, production and backlog? And then, you know, when does employment finally start to hit the fifty and above level? I think when there’s more confidence and there just wasn’t a lot of confidence last March all the way until
Lewis A. Weiss (12:46.532)
Right, right.
Lewis A. Weiss (12:56.208)
Yeah.
Susan Spence, Chair, ISM Manuf (13:10.123)
December, January.
Lewis A. Weiss (13:11.802)
Well, as an aside topic, I think skill gap and people retiring from manufacturing and or dying. I think that and we’re t we’re talking right now we’re having the the president of community college of Mars County, New Jersey’s gonna be on on our show. And what they did was they opened up a manufacturing facility on campus and the kids are operating the kids. The young adults are
Susan Spence, Chair, ISM Manuf (13:36.055)
Yeah. Yeah.
Lewis A. Weiss (13:41.686)
operating and manufacturing and and they get paid for their work that they do in the in that service sector. So we’re looking forward to having him on because we really we’re gonna need another three million people before twenty thirty.
Susan Spence, Chair, ISM Manuf (13:58.53)
Yeah. Yeah.
Amy (13:59.198)
Is it possible that this that the growth for employment is slower because they just the the growth there is they don’t have the people to fill that employment? As opposed to it not being available?
Susan Spence, Chair, ISM Manuf (14:10.591)
In some cases
In in some cases, comments are we’re having a hard time finding skilled labor. And sometimes they’re quite talking about salary engineers and sometimes they’re talking about, you know, a machine operator, right? it wasn’t the most prevalent comment. but you know, you want manufacturing to come roaring back. Well, you know, doing it in the US isn’t as easy as saying, you know, we’re, you know, we’re we’re gonna throw these terror.
On so many products that people won’t have a choice but to build here. But it didn’t end up happening in a large way from my point of view, from what I see from these comments. So, but you know, Lew’s correct, obviously, there I think for years there’s been, you know, concerns about skills shortage, right? And you know, I think that university is brilliant. I’ve seen that in other places before. First of all, you have to expose the students to, you know, these are really good paying jobs.
jobs, really good paying jobs. I worked at Pratt and Whitney for fifteen years. I think, you know, a machine operator is they’re bringing home eighty five, ninety thousand dollars with overtime probably. I mean but it’s very, very skilled labor. It’s not just sitting there hitting a button stamping the machines. So
Lewis A. Weiss (15:26.352)
Absolutely. Yeah.
Lewis A. Weiss (15:32.132)
And within three years of coming out of some kind of a training or apprentice apprenticeship, they’re making a hundred and fifty thousand. And if you happen to go into underwater welding, you’re gonna make close to two hundred thousand dollars. So for all you sports enthusiasts that do scuba diving, go to a welding school and learn how to weld underwater. Y you’re gonna make more f more money than your father ever did.
Susan Spence, Chair, ISM Manuf (15:40.289)
Yeah, yeah.
Susan Spence, Chair, ISM Manuf (15:48.461)
Yeah.
Yeah.
Amy (15:59.134)
I mean, even just if you think about like the college the incentives now, the number of scholarships, I know like BlackRock
put together, I think it’s a hundred million dollars for a future builders workforce initiative with, you know, grants and training, you know, Americans for manufacturing jobs. So there’s a ton that’s happening right now as far as what’s being invested in that area. you know, I think that that’s all gonna pay off. You know, that’s gonna be a you know, obviously it’s gonna have to start though, so that and they’re gonna have to get educated before they can come to work. But yeah.
I think that’ll be good. So it’ll be interesting to see how those those numbers change.
Lewis A. Weiss (16:41.009)
I’d like to point out on the report that the commodity prices up or down, there were none that were down. None.
Susan Spence, Chair, ISM Manuf (16:49.461)
None. I think last month there was one that was down and the month before that there was none that were down. It’s a long, long list. You know, I mean corn corn is back on yeah.
Lewis A. Weiss (16:58.747)
Yeah, yeah, absolutely.
Lewis A. Weiss (17:04.815)
And there are actually some shortages on certain commodities like aluminum, copper, silver. And you know, silver is very much required for the use in in technology today and iPhones and things of that nature, and there is a shortage.
Susan Spence, Chair, ISM Manuf (17:09.345)
Yeah. Yeah.
Susan Spence, Chair, ISM Manuf (17:24.119)
Yeah.
There is on our shortage lists, if you look at anything that’s been on the list more than three months or more than two months, those things are ones that we think were used for building out the data centers, electrical, electronic components, memory, semis, and then then there’s new stuff, right? Propylene glycol, glycol, sorry, resins, aluminum again. So a lot of times you look at what’s short and it’s also up. So
Lewis A. Weiss (17:55.419)
Yeah, makes sense. Makes sense.
Susan Spence, Chair, ISM Manuf (17:56.598)
Yeah. Yeah.
So we need we need war to be over, we need prices to go ahead and settle back down, and whatever we’re gonna see, we’re replacements tariffs this summer. Hopefully they’re gonna be within the section of the law that won’t be challenged, but maybe will be reasonable, maybe more like 1015 versus 4550-60. And I think we’ll have longer term expansion if we get that. That is my my gut feel.
Lewis A. Weiss (18:27.857)
Well it might also help to have this this war that we’ve been in to come to a stop. and then things might go back to I don’t know, normal if that’s normal ish, right, right. I don’t think that we’re ever gonna see what I would consider normal. but that’s that’s just me.
Susan Spence, Chair, ISM Manuf (18:36.311)
Yes.
Susan Spence, Chair, ISM Manuf (18:42.261)
Normal ish. Yeah. Yeah. Yeah.
Lewis A. Weiss (18:56.177)
What other what other points would you like to bring out for us, Susan?
Susan Spence, Chair, ISM Manuf (19:01.383)
I don’t think I mentioned this one yet. the percent of the manufacturing sector and contraction is down to two percent. Strong contraction also two percent. That’s the same as last month. But contraction last month was nineteen percent. Back in early fall was eighty percent. So everything’s growing except I think it was wood products that is not. Yeah.
Lewis A. Weiss (19:23.569)
Yeah, okay.
Lewis A. Weiss (19:29.391)
Yeah, wood products was the only one.
Susan Spence, Chair, ISM Manuf (19:30.845)
One point yeah, so wood products is you know one point six four percent of it it’s it’s not a big category. It’s interesting because they also were one of the ones that are like, We’re hiring. It’s like why? But you know, all the big six, seventeen out of eighteen, all above a fifty this month. It’s great. Yeah, it’s great. So I’d love it if that held.
Lewis A. Weiss (19:43.269)
Yeah.
Lewis A. Weiss (19:51.131)
Yeah, yeah, yeah, yeah.
Lewis A. Weiss (19:55.484)
So normally I throw in a ringer question, but I I don’t think I could really do that ’cause I was gonna ask you, so what do think about the future? But then again, that’s almost impossible to predict nowadays.
Susan Spence, Chair, ISM Manuf (20:09.057)
With every month of data and more information from these panelists who every month take the time to put really thoughtful comments in, I feel better about maybe some predictions. I’m always I’m by nature a little conservative, but I pay attention to what these men and women are telling us because they know.
They’re on the front lines. I had that job for you know at various levels for almost you know, thirty-nine years when I was in the workforce.
Lewis A. Weiss (20:31.633)
Right, right.
Lewis A. Weiss (20:39.973)
How how could that be being that you you know, you’re so young? How could you win
Susan Spence, Chair, ISM Manuf (20:44.191)
It’s it’s a a good colorist and good hair guy. Which I’m due. The r the right the grey roots are there. and they they they know what’s happening and so I get asked, you know, what what would you tell a CEOs like, go sit with your supply management people and listen to you know, because they have to live it every day. So my hat is off to those that are in there in the trenches. I’ve said more than once I’m really, really happy to be retired right now ’cause this covet
Lewis A. Weiss (20:50.961)
Lewis A. Weiss (20:59.761)
Mm-hmm.
Susan Spence, Chair, ISM Manuf (21:14.135)
COVID was hard, pandemic was hard, you know, there were some hard hard times in thirty nine years, but whoa, this one in the last year. It hurt your head. Yeah. Yeah.
Lewis A. Weiss (21:23.393)
And it’s it’s a wild year. Wild wild year. Amy, any f any final thoughts?
Amy (21:28.603)
Changes started.
Susan Spence, Chair, ISM Manuf (21:34.131)
Amy or me?
Lewis A. Weiss (21:34.853)
Amy.
Amy (21:36.253)
No, I was just saying think the change is hard in general, but it looks like we’re going throughout all of it, it seems like we’re handling the change pretty well. So it’s good to see the numbers where they are and I hope to I hope on our next conversation that they s continue to go in this direction. I think that’s great.
Susan Spence, Chair, ISM Manuf (21:51.947)
Yeah, I hope so. Well no, but I I think we’re gonna be talking to you on June twenty second about the semi. Excellent. So I look forward to that.
Lewis A. Weiss (21:53.851)
Susan, any final comments?
Lewis A. Weiss (22:01.862)
Yes. Yes. I I will I will be here with bells on. and everyone again if you if you like the show give us a like. If you don’t like the show, I don’t know, call Joe Rogan. Only kidding, only kidding. All right, everybody. Thank you very much, and I think that’s that’s a wrap.
Susan Spence, Chair, ISM Manuf (22:09.055)
All right, same.
Susan Spence, Chair, ISM Manuf (22:20.333)
Thank you both.
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