ISM’s ‘special questions’ give manufacturing and non-manufacturing execs things to ponder

In its semiannual forecasts, the Institute for Supply Management (ISM) always does an excellent job of laying out its estimates in terms of what to expect for things like capital expenditures, production, prices, and utilization rates, among other metrics for the manufacturing and non-manufacturing sectors.

One component of the report, which does not always get a ton of attention, are the “special questions” included at the end, which are always interesting and relevant while helping to provide some perspective, too.

This year’s batch was no exception, with one question focusing on tariffs and if they will raise the price of goods ISM member respondents, for manufacturing and non-manufacturing, produce and deliver to customers.

On the manufacturing side, 73.9% of respondents said that they do believe tariffs will raise prices, with 26.1% saying they will not.

Other tariff-related questions for manufacturing included: if you believe that tariffs will raise the price of your goods to your customers, by how much? The average increase was 5.4% with a median of 3.0%. And another one asked if tariffs will cause delays and disruptions in your supply chain? Nearly 60%-at 57.5%-said yes and 42.5% said no.

When I was interviewing ISM leadership for the semiannual report, their two representatives offered up plenty about the potential of tariffs on manufacturing and non-manufacturing.

Tim Fiore, chair of the ISM's Manufacturing Business Survey Committee, explained that three manufacturing sectors that would be most likely to bear the brunt of the threat of tariffs or a related impact are metal products, machinery, and transportation equipment. Other sectors that would feel some impact to a lesser degree include computers and electronic products, as well as chemical products and food and beverage, which is more packaging-related and probably a smaller percentage from the standpoint of aluminum impact.

“The main three have already seen some significant impact in the range of low teens and high single digits, and there is not much more growth being forecasted there for the rest of the year,” he said. “There may be some relaxation coming downstream with some indications of that, but it remains to be seen. In the business world, you want stability instead of uncertainty, and we are definitely in an area of uncertainty.

Fiore also observed that there is a general uncertainty in the U.S. in terms of retaliation from China, noting that China also put a tariff on U.S. soybeans while China is the biggest customer of U.S. soybeans, which is a bit of an “eye for an eye” approach.

For non-manufacturing, 50.3% of ISM member respondents said that tariffs would raise prices of goods they produce and deliver to customers, with 49.7% saying they would not, making it nearly an even split. But the gap was wider for the impact of tariffs causing supply chain delays and disruptions, with 59% saying there would be issues and 41% saying there would not be.

As for how much tariffs would raise the price of goods for customers, the tally came in at 7.2% and the median was 5.0%.

“It is more of a sentiment at this point in time as to how it will materialize,” said Tony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee.

Looking at employment, a series of the special questions asked various questions related to employment.

On the non-manufacturing side, 64.4% of respondents said they have had difficulty hiring workers to fill open positions, compared to 35.6% saying they were not having difficulty. And 35.7% said they have raised wages to recruit new hires while 65.7 said they were not raising wages. New hire training over the last six months was split down the middle at 50%.

Nieves said that the lack of wage increases reflects the suitability, or the application, of the labor force to make jobs better, as well as demand for open positions, too.

“You really have to look at the labor pool,” he added. “This is where we see the most issues for retaining workers for skilled labor positions as well as the labor pool to pull from that.”

For manufacturing, 77.9% of respondents said they have had difficulty hiring workers to fill open positions, compared to 22.1% saying they were not having difficulty. And 53.3% said they have raised wages to recruit new hires while 46.7 said they were not raising wages. New hire training over the last six months was mixed, with 47.9% saying they have offered additional training and 52.1% saying they have not done so.

Fiore made it clear that the hiring outlook, especially when considering the percentage for hiring is up 14% since December 2017, “ has gotten worse, there is no doubt about it.”

As for wages, he said the 53.3% of ISM manufacturing member saying they have raised wages marks a 20% increase when compared to December.

Seeing half of these companies saying they increased wages to hire people…is a real serious move because raising wages for new hires, especially if you have direct labor forces, means you have not raised the wages of the people that you currently have employed and that is not done very easily,” explained Fiore.

What’s more, he said that manufacturers continue to have to hire people not qualified for jobs and subsequently put in more training.

“Last year, a person was doing the job and this year a company needs to hire someone new to a job and invest more money to get them up to speed…you can see the turmoil that causes in wages,” he said.

Even in a period of relatively decent economic momentum, these questions, and answers, may not cease the positivity abound, but they certainly lend themselves to being cautious and watchful when making sound business decisions all the same.