Cooling Economy, Inflation, and Tariff Pressures Mount in Manufacturing

**SPEAKER_1** (0:00)
Welcome back. It's time to go deep on the August ISM manufacturing data we got this morning. Joining me right now, our pleasure to have Susan Spence, Chair of ISM Manufacturing PMI. And I'm so glad you're with us, Susan, once again, because while we're seeing expansion over several months in a row, and different parts of this report, you're also seeing some warning signs. So what is your takeaway?

**Susan Spence** (0:24)
Thanks for having me to call warning sign is indeed the phrase I've been using all day. So we are still in expansion, first of all and foremost. And even though we only dropped one percentage points there, here's the warning, a couple of really important demand factors, new orders down 3 percent backlog down 3.0. We also have, I'm sorry, down 3.2. We also have imports down 3.2. So that's one set of factors. The price volatility, which had been starting to die down from a high of over 85, last month hit 71.1. The price index is still at 71.1.
And as important as all those numbers are, the sentiment, while still positive in the areas of demand and production is not as positive as last month.
Let me just cite you some numbers on production for every... We had 3.3 positive comments for every negative comment on production. That is down to 2.2 to 1
And on new orders last month, 3.5 positive comments to every negative. That's down to 2 to 1 That's pretty big deterioration. So not to overblow the negativity, but I believe the continued war and certainly the price volatility and supply chain issues, especially in the computer and electronics industry, are really stressing out these supply chains. This does not even include the latest tariff strife with Canada because obviously that's only happened recently and our survey data was already back being compiled. So while we're strong with an economy, the deterioration possibly could be a bubble, but with the sentiment deteriorating along with it, it's got me a bit worried.

**SPEAKER_1** (2:26)
Yeah. So expansion, but at a slower pace, still the above 50 numbers, but slowing down. And so you slow down and then maybe you stop and then go backwards. I mean, that's really what we're watching for.
You were feeling a little better about jobs in the last report. We spoke last time. How are you feeling? Because I wanted to ask you because it's so key. We have the jobs report on Friday. We got the Joltz numbers. You have your employment number at 51.2. What did you think of that?

**Susan Spence** (2:58)
So that's down not 0.2 like some others, that's down 1.6.
It's a little worrisome. The sentiment on hiring versus not is almost unchanged.
Sentiment was one and a half positive comments to every negative. It's down to 1.3 to 1 My belief is that if we have another month or two of dips in demand factors like new orders and production, even if they're smaller dips, I think it could really affect employment. Remember, employment was the last index to come up above 50 And it's really only been there. This is only the second month it's been in expansion. So inflation is a huge worry. 57% of the overall negative comments were about inflation, 30% about tariffs, a little less about the war. But you've got war, you've got a new round of tariff strife, maybe is the word we'll use, on top of pricing volatility. So it all depends on what the customers do, but these companies waited a while to hire people. And so I don't believe they're going to knee-jerk and start laying off people right away, but they've got to see that those orders hold above 50, to I think feel great about their decisions and keep going.

**SPEAKER_1** (4:24)
I think the comments from the people that you survey and what you get are I think a very telling. The economy is annoying. It's getting in the way of otherwise good business. We're making great new products, but struggling to compete when prices escalate due to the straight of horror moves. So it shows that folks are sort of struggling to make sense of it all, and rightfully so. At the same time, you talked about some of the commodities that were in short supply such as copper. Can you give us some thoughts and the feelings here?

**Susan Spence** (4:55)
Yeah. So chemical products, which those first two comments come from, that's 20% of manufacturing sector. Chemical products is not an expansion, and those products are in virtually everything, so they pay a lot of attention there. If you switch to the categories and sectors that have been doing well because of data build out computer electronic products, not only are they dealing with prices, but shortages and not being able to get the product. Last month and this month, there were a few comments for appliances versus cars, versus people doing components for data center build out, and wherever their raw materials are coming from. That doesn't have anything to do with tariffs. That's all about just competition for demand.