Manufacturing sector growth accelerates; pandemic limits production

Economic activity in the manufacturing sector grew at a faster rate in September, from August, while production continues to be limited by global pandemic-related issues, according to the Institute for Supply Management (ISM).

The ISM released Friday (Oct. 1) the Manufacturing ISM Report on Business that shows the Purchasing Managers’ Index (PMI) rose 1.2 percentage points to 61.1% in September, from August, and the overall economy expanded for the 16^th consecutive month. A PMI reading above 50% indicates the manufacturing economy is expanding.

The new orders index was flat at 66.7%, the production index fell 0.6 percentage points to 59.4%, the prices index increased 1.8 percentage points to 81.2%, the backlog of orders index fell 3.4 percentage points to 64.8%, the employment index rose 1.2 percentage points to 50.2%, the supplier deliveries index rose 3.9 percentage points to 73.4%, the inventories index increased 1.4 percentage points to 55.6%, the new export orders index fell 3.2 percentage points to 53.4%, and the imports index increased 0.6 percentage points to 54.9%.

Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, said “companies and suppliers continue to deal with an unprecedented number of hurdles to meet increasing demand. All segments of the manufacturing economy are impacted by record-long raw materials lead times, continued shortages of critical materials, rising commodities prices and difficulties in transporting products. Global pandemic-related issues — worker absenteeism, short-term shutdowns due to parts shortages, difficulties in filling open positions and overseas supply chain problems — continue to limit manufacturing growth potential.

“However, optimistic panel sentiment remains strong, with three positive growth comments for every cautious comment,” he added. “Panelists are fully focused on supply chain issues in order to respond to the ongoing high levels of demand.”

The employment index returned to expansion after one month of contraction, but panelists continue to report hiring difficulties with no significant signs of abating, Fiore said. The inventories index continued to expand faster because work-in-process inventory is being held longer amid part shortages, and more finished goods inventory is being held because of downstream customer issues, he said. The prices index expanded for the 16^th consecutive month and at a faster rate in September, and this indicates continued supplier pricing power and scarcity of supply chain goods, he noted.

The following six largest manufacturing industries reported moderate to strong growth in September: petroleum and coal products; computer and electronic products; chemical products; food, beverage and tobacco products; fabricated metal products; and transportation equipment.

“Manufacturing performed well for the 16^th straight month, with demand, consumption and inputs registering month-over-month growth, in spite of continuing unprecedented obstacles and ever-increasing demand,” Fiore said. “Panelists’ companies and their supply chains continue to struggle to meet demand due to difficulties in hiring and a clear cycle of labor turnover, as workers opt for more attractive job opportunities. Disruptions from COVID-19, primarily in Southeast Asia, continue to have an impact on many industry sectors. Congestion at ports in China and the U.S. continues to be a headwind, as transportation networks remain stressed. Demand remains at strong levels, despite increasing prices.”

In the computer and electronics products industry, a respondent said port issues and a lack of containers have contributed to shortages in electronic components and assemblies. Another respondent said “the impacts from Hurricane Ida on the petrochemical industry has put additional stress on an already fragile supply chain. Logistics with intermodal containers and motor carriers continues to be a challenge for planning deliveries of materials.”

Respondents in machinery, transportation equipment, and food, beverage and tobacco products industries highlighted challenges with the lack of available labor. Respondents also cited concerns with rising costs and raw materials shortages.

A respondent in the electrical equipment, appliances and components industry said “customer demand continues to swell as we prepare for the fourth quarter, and overall growth has been extremely good for the year. Supply chain concerns are growing beyond electronics and chips into most other commodities. Lead times are extending, shipping lanes are slowing and we will not see an end to this in 2021.”

In the paper products industry, a respondent said, “We are still amazed by the labor market. We used to have 100 applicants for an opening; we are now seeing about 10 — and often, the applicant does not show for the interview.”