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What B2B Sales Professionals Should Know About the Manufacturing Slowdown

Posted by IndustrySelect on Tuesday, September 10, 2019


Following a 35-month winning streak, U.S. manufacturing activity contracted for the first time since 2016, according to the Institute for Supply Management’s most recent Report on Business.. This  report adds to a number of indicators that point to a manufacturing contraction and companies that do business with U.S. manufacturers are bound to be impacted.

Today we’re going to take a look at the ISM’s report and bring you some key takeaways about the slowdown, the challenges manufacturers are currently facing, and what the future might hold for those doing business with them.

What is the ISM Index?

The ISM’s index is among the top economic indicators currently used to gauge the health of the industrial sector and the economy overall. Many manufacturers use the index to help them forcast and determine future demand for their goods. According to the ISM, U.S. manufacturing activity now stands at 49.1%, down 2.1% from July’s reading of 51.2%. Any reading under 50% represents a contraction, so this means that U.S. manufacturing is no longer growing.

The ISM tracks a number of growth metrics, including new orders, production, employment, supplier deliveries, exports, imports, prices and more.

The ISM found that new orders in manufacturing declined in August. Production also slid, as did employment, leading to an increase in the backlog of orders.

Inventories have contracted, but supplier deliveries have increased. Exports dipped.

Not All Industries Are Impacted

Not all industries are in a slowdown. Looking at the overall gauge, seven out of eighteen industries reported contraction, led by apparel manufacturers, companies specializing in metal fabrication contracted the most.

Transportation equipment also contracted, as did those in the primary metal industry; plastics & rubber; paper products and electrical equipment.

However, textile companies in the U.S. reported growth to the ISM, as did furniture and wood products manufacturers; food processing companies; petroleum firms; chemical processing companies; and those manufacturers specializing in non-metallic mineral products.

Causes of the Slowdown

U.S. manufacturers have been struggling with uncertainty surrounding U.S. tariffs on Chinese-made goods for more than a year now. Tariffs make it more difficult for domestic manufacturers to produce their final product.

Industrial companies that do business in China are rethinking their supply chains, either looking to move to other locations in Asia or returning production home.

Many manufacturing companies are putting capital investments on hold.

With many industrial companies, the outlook for the future is largely dependent on a trade deal being struck between the world’s two largest economies.

Tariffs, however, are not the only issue. Manufacturers in the transportation equipment industry, for instance, are looking at an ongoing slowdown in the auto industry.

The decline in auto could potentially be exacerbated by the most recent tariffs China placed on U.S. auto parts. The global economy has slowed overall, leading to a slowdown in exports.

Other Economic Reports Agree – But Not All

Finding from the ISM generally agree with other recent economic reports, including:

• The U.S. Labor report, which has for the most part reported lukewarm hiring in the sector, following the record manufacturing job growth reported in 2018. The manufacturing sector added just 3,000 jobs (130,000 were added to the economy overall) in August.
• The Commerce Department reports manufacturing output is at a virtual standstill.
• Manufacturing labor productivity has fallen 2.2% in the second quarter.
• The IHS Markit PMI, an index similar to the ISM, found a similar trend to the ISM’s, with manufacturing activity contracting to 49.9% in August.

However, it should be noted that the nation’s manufacturing sector has been growing at a near-record pace for the past two years, so a slowdown was all but inevitable.

Manufacturing employment is at the highest its been since November of 2008, with the sector adding 1.4 million workers in this most recent expansion. The trade deficit actually narrowed, according to the most recent report from the Census Bureau, though exports are down year over year.

Conclusion: 4 Takeaways for Sales & Marketing Professionals

Going forward, sales and marketing professional should keep these key factors in mind when it comes to reports of a downturn in U.S. manufacturing:

• Not all industries are slowing. Textiles, furniture, food processing, oil & gas companies and chemical manufacturers are still growing. If you’re actively pursuing new business, these may be the industries to contact first. Keep in mind that an IndustrySelect subscription allows you to narrow down a list of prospects by SIC so that you’re working with manufacturers within a specific industry.

• The “reshoring” trend may heat up this year as industrial companies finalize plans to move production home. This represents a sizable opportunity for any business that serves the industrial sector, as industrial companies will be looking for assistance for staffing, site selection, facilities management, new equipment, and more.

• Industrial production is currently contracting as is employment. This has led to an increase in the backlog of orders. There may be opportunities for businesses that specialize in automation technology or other methods to increase production in a cost-effective way.

• Keep in mind that a “slowdown” is mostly relative. Despite the numbers being muted relative to the major expansions of the past two years, U.S. manufacturing is still currently going strong after posting record gains. The contraction could be temporary or a statistical blip.

Reaching U.S. Manufacturers in 2019

Are you looking to reach U.S. manufacturers? Now, more than ever, having the right data and a detailed understanding of your market is essential.Each manufacturer in IndustrySelect's live database contains up to thirty detailed facts, researched firsthand by MNI.

Powerful functions let you search for companies and build & save lists of prospects, generate reports, export data, and more. Subscriptions also include contact information for hard-to-reach executives. Learn more about IndustrySelect's database subscription.

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