Released each month by the Institute for Supply Management (ISM), the ISM Manufacturing Index is a leading gauge on the health of the American manufacturing industry. The index has a benchmark of 50. Any reading above 50 indicates the U.S. manufacturing industry is expanding. Below, the industry is contracting.
Since reaching a 14-year high of 61.3 in August, the index has been in decline. In April, the index was reported at 52.8 — its lowest level since October 2016 and below March’s reading of 55.3. In other words, the U.S. manufacturing industry is still growing, but at a gradually declining pace.
There are several factors driving this declining pace of growth. Since early 2018, the broader global economy has been weakening. In April, the International Monetary Fund lowered this year’s projected global economic growth rate to just 3.3 percent. This would mark the slowest pace of economic growth since 2009, the height of the global financial crisis.
The world’s economic decline is most evident among America’s top trading partners. This year, the economies of China, Canada, Mexico and the European Union are all expected to further weaken from 2018’s sluggish pace of growth. America’s manufacturers have also been targeted, along with the agricultural industry, in our ongoing trade disputes, now entering their second year.
Despite these challenges, the manufacturing industry’s outlook remains generally positive. On Thursday, the ISM released its semi-annual economic forecast. In its report, 17 of 18 manufacturing sectors are predicting revenue growth in 2019. On average, revenues are expected to increase by 4 percent from 2018.
More importantly, this optimism is conveyed by the industry’s continued demand for skilled labor. In 2018, the manufacturing industry added 264,000 new jobs, its biggest annual gain in 22 years. For the prior 10 years, the industry averaged a 120,000 per year loss of jobs.
In the first four months of this year, the U.S. manufacturing industry has added only 29,000 new jobs. However, this is not from a lack of available jobs or employer demand. According to the U.S. Department of Labor, there are 476,000 job openings in the manufacturing industry currently unfilled. In fact, in a recent ISM survey, 76 percent of manufacturing firms have had difficulty hiring workers to fill open positions in the past six months. 53 percent of survey respondents have also raised wages to recruit new hires.
For employers, adding workers requires a sizable commitment in time, resources and cost. It also requires confidence in the future — that sales and revenues will continue to grow. For the manufacturing industry, its demand for skilled labor will measure just how optimistic the industry truly is.