ISM report takes deep dive on impact of Harvey on manufacturing and non-manufacturing sectors

Soon after Hurricane Harvey struck a wide swath of Texas and surrounding areas, it made a significant impact on supply chain and logistics operations in the Gulf Coast, an impact that the Institute for Supply Management (ISM) labeled a “disaster that will impact the U.S. economy far beyond that of the Gulf Coast.”

In its Supplemental ISM Report on Business Hurricane Harvey Report, the ISM asked members of its Manufacturing and Non-Manufacturing Business Survey Committees to assess how Harvey may impact various business metrics and whether they may be impacted by shortages of input materials resultant from Harvey.

A top-level takeaway of the findings provided by ISM CEO Tom Derry cited things like ongoing challenges for United States companies with pricing, supplier deliveries, and certain commodities. But countering that, though, Derry explained, there is also some reason for optimism in the form of data showing that there will be “relatively minimal” impacts on production, new orders and employment.

Some of the key data takeaways from the ISM report include:

• 67% of supply chain managers saying input materials pricing will at least be somewhat negatively impacted over the next three months and 27% expect prices to be negatively or very negatively impacted;
• 56% of respondents believe supplier deliveries will be at least somewhat negatively impacted over the next three months;
• 19% expect deliveries to be negatively or very negatively impacted      
• 56% expect at least some negative impact on pricing over the next six months, with ISM manufacturing sub-sector respondents more concerned than non-manufacturing respondents about negative pricing impacts for both three months and six months out;
• 54% expect at least some negative impact to supplier deliveries over the next three months and 19% expecting negative to very negative impacts, with 36% expecting at least some negative pricing impact six months out and manufacturing respondents more concerned about slowed deliveries three and six months out than non-manufacturing respondents; and
• more than 80% of respondents expect that employment will be neither positively, nor negatively impacted by Harvey, with indications that non-manufacturing sectors may be slightly more negatively impacted than manufacturing sub-sectors

Looking at commodities expected to be in short supply due to Harvey, the report noted that fuel and petrochemical feed stocks and derivatives could be in short supply over the next three months, with fuel, plastic resins, chemicals, electronic components, feedstocks. chemicals (raw), and gasoline, among others, expected to be in short supply over the next three months.

And industries expected to be impacted by commodity shortages, include: Plastics & Rubber Products; Food, Beverage & Tobacco Products; Wholesale Trade; Machinery; Chemical Products; Transportation Equipment Manufacturing; Professional, Scientific, & Technical Services; Utilities; Apparel, Leather & Allied Products; Computer & Electronic Products; Furniture & Related Products; Government; Construction; Paper Products; and Primary Metals, with 27 of the 36 industries reporting potential commodity shortages.

Tony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee said in an interview that the numbers between manufacturing and non-manufacturing over the next three months and the next six months in term of Harvey’s impact on non-manufacturing.

“When you look at commodities, they will be more impacted on the manufacturing side, but when you look at it, these are things that also pull through to services, or non-manufacturing, with things like fuel, petroleum-based products, bulk chemicals, and electronics and other things that come out of the Houston area,” he explained. “These things may clearly impact manufacturers more, but non-manufacturers are the customers of the manufacturers. It is a pull-through on the supply chain.”

On the manufacturing side, ISM Manufacturing Committee Chair Tim Fiore said that when assessing the impact of Harvey it is important to note that Texas represents more than ten percent of U.S. GDP and is the number one U.S. export state at $210 billion, with 45% of that figure going into Mexico through cross-border trade, and the other 55% exported to non-NAFTA countries.

“Texas is really big in chemical products, with 20%-25% of that sector there,” he said. “And 30% of our petroleum and coal products are in Texas, 10% of computer and electronics products and 13% of our transportation is there, too,” he added. “Chemical products and petroleum and coal products were directly impacted. Computer and electronics and transportation equipment probably had some supply chain disruptions and transportation disruptions but probably not a lot of shutdowns. Many of these sectors are in the Dallas area or inland in Laredo. They are not impacted like the products on the coast like chemicals and petroleum and coal products.”

Citing past experience as a buyer of fuel, with no ships able to access ports for at least three days after landfall, Fiore said a chemical plant, for example, needs to be shut down at least 24 hours within landfall, with the process beginning three days in advance.

“The starting and stopping of reactors in plants, when things like this happen, is not a good thing, and I see this as the biggest issue related to September performance,” he said. “September has always been a strong manufacturing month and is one of the top three of the year. There are ripple effects here that could be incredible…for things like price and supplier delivery issues even three or four tiers down the supply chain. But things are expected to improve by around the six month mark.”