US tech industry slows as tariffs tie-up factories

US tech factories slow in terms of production

U.S. factory production and employment rates declined between November and December in 2018, marking the nation’s lowest recorded growth in four years.

Data from the Institute of Supply Management (ISM) indicates that the national Purchasing Managers Index (PMI) of 2018 fell from 59.3 percent in November to 54.1 in December, declining by a total of 5.2 percent (where PMI values over 50 demonstrate growth, and anything below represents loss).

When compared against previous years, this is the lowest rate of U.S. factory expansion since January 2014. In fact, this 5.2 drop is one of the most dramatic of the current century, only surpassed by PMI crashes that occurred alongside the September 11 terror attacks and the financial crisis of 2008.

While many large industry sectors have experienced reductions in activity, the U.S. tech industries have been hit particularly hard (see the full ISM data report here).

Overview of the Tech Industry Growth Decline

Looking across this overall decline, the PMI of the tech industry dropped by 10 points while most others saw an average reduction of 5 points. This means technology manufacturing slowdowns are one of the larger contributors to the current activity plunge.

Every index in the PMI represented this decline—from the orders placed by customers, the tech factory production rates, the deliveries made, and the prices of products. On top of all this, raw material costs have also been on the rise month-after-month for nearly three years.

Even technological powerhouses like the electronics industry, which had trouble keeping up with popular component demand throughout 2018, had their growth slowed.

Trouble with Tariffs

One of the largest factors for the activity decline are concerns from both companies and consumers about the ongoing tariffs between the U.S. and China.

The status of these tariffs has been dynamic, to say the least, with them being implemented by the U.S. in 2018 and just recently suspended for 90 days. Everything from international business costs to the methods companies use to source materials, have been impacted.

Because these tariffs dictate business profits and the directions they choose to take, many companies are holding off on any big action until the forecast is clearer. And as an added result, customer demand for products and services are also declining as worries about their uncertain economic climate rise.

So all in all, we’re right in the middle of economic uncertainty and the best anyone can do at this point is speculate. It remains to be seen whether the falling PMI of this December will act as a warning for the U.S.-China tariffs, or whether tensions will continue to rise as business growth shrinks.