Economic activity in the manufacturing sector grew at a slower pace in October, compared to September, amid materials shortages, high commodity prices and transportation issues, according to the Institute for Supply Management (ISM).
The ISM released Monday (Nov. 1) the Manufacturing ISM Report on Business that shows the Purchasing Managers’ Index (PMI) fell by 0.3 percentage points to 60.8% in October, from September, as the overall economy expanded for the 17th consecutive month. A PMI reading above 50% indicates the manufacturing sector is expanding.
The new orders index fell 6.9 percentage points to 59.8% in October, from September. The production index fell 0.1 percentage points to 59.3%. The prices index rose 4.5 percentage points to 85.7%. The backlog of orders fell 1.2 percentage points to 63.6%. The employment index rose 1.8 percentage points to 52%. The supplier deliveries index increased 2.2 percentage points to 75.6%. The inventories index increased 1.4 percentage points to 57%. The new export orders index rose 1.2 percentage points to 54.6%. The imports index fell 5.8 percentage points to 49.1%.
Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, said “Business Survey Committee panelists reported that their 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, panel sentiment remains strongly optimistic, with four positive growth comments for every cautious comment,” Fiore added. “Panelists are fully focused on supply chain issues in order to respond to the ongoing high levels of demand.”
Fiore noted that even though the employment index expanded for the second consecutive month, hiring issues have yet to ease at panelists’ companies. Production expansion continued to be stifled by inputs, which are expressed as supplier deliveries, inventories and imports. Imports contracted in October, from September.
“The supplier deliveries index slowed, while the inventories index continued to expand faster due to work-in-process inventory held longer due to key part shortages and more finished goods inventory held due to downstream customer issues,” Fiore said. “The prices index expanded for the 17th consecutive month, at a faster rate in October, indicating continued supplier pricing power and scarcity of supply chain goods.”
The following manufacturing industries had moderate to strong growth in October: Food, beverage and tobacco products; computer and electronic products; chemical products; fabricated metal products; petroleum and coal products; and transportation equipment.
“Manufacturing performed well for the 17th straight month, with demand and consumption registering month-over-month growth, in spite of continuing unprecedented obstacles (including the imports index moving into contraction territory) and ever-increasing demand,” Fiore said. “Meeting demand remains a challenge, due to hiring difficulties and a clear cycle of labor turnover: As workers opt for more attractive job opportunities, panelists’ companies and their suppliers struggle to maintain employment levels. 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.”
A respondent in the computer and electronic products industry said microchip and circuit breaker shortages are expected to continue into 2022. In the transportation equipment industry, a respondent said it has diverted chips (semiconductors) to its higher-margin vehicles and stopped or limited lower-margin vehicle production.
Several respondents noted strong sales are continuing but that global supply chain issues are worsening.
A respondent in the plastics and rubber products industry said “My prediction is that 2022 will be very similar to 2021 – similar demand, constrained supply, restricted logistics and rampant inflation.”