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The ISM Purchasing Manager’s Index (PMI) for manufacturing survey dropped 1.5 points to 59.3 for the month of March 2018. While a significant drop from last month’s 60.8, last month was the highest the PMI reached in the last 14 years and March remains above the 90th percentile of PMI reports since 2000.
The continued positive economic environment has led to supply constraints and a buildup in the price index, which now stands at 78.1, its highest level in 7 years. Price increases occurred across 17 of 18 industry sectors in March as new orders also dropped 2.3 points. While the full impact of tariffs and a potential trade war have not set in, some companies are beginning to see signs across select commodity prices and concern around overall global demand rise.
But with any change in rules, businesses need to learn what those rules are, how they will impact their business, and then how to adjust. Most manufacturers already build locally. There have been so many changes already in American regulations that they long ago realized it’s best for their business to build for American sales in North America, and to build for European sales in Europe to meet demand. It’s not 100% local but it’s heavily weighted. Manufacturers want to be close to their customers.
How businesses adapt to the new regulations will speak to their inherent strategy. If they weren’t as flexible as they should have been, this may be a challenge. Commodity prices often move more than 10% in a year, so this tariff is not that different from that. It’s actually more predictable.