Omicron variant impacts manufacturing sector production in January

Manufacturing economic activity grew at a slower rate in January as production was limited because of absenteeism attributed to the COVID-19 omicron variant, according to the Institute for Supply Management (ISM).

The ISM released Tuesday (Feb. 1) the January Manufacturing ISM Report on Business that shows the Purchasing Managers’ Index (PMI) fell by 1.2 percentage points to 57.6%, from 58.8% in December. A reading above 50% indicates the manufacturing sector is growing.

According to the report, new orders, production and employment increased, while supplier deliveries slowed at a slower rate. The backlog of orders and raw materials inventories increased. However, customers’ inventories remain too low, and prices rose. Exports and imports increased.

“The U.S. manufacturing sector remains in a demand-driven, supply chain-constrained environment, but January was the third straight month with indications of improvements in labor resources and supplier delivery performance,” said Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee. “Still, there were shortages of critical intermediate materials, difficulties in transporting products and lack of labor on factory floors due to the COVID-19 omicron variant. Quits rate and early retirements hinder reliable consumption. Panel sentiment remains strongly optimistic, with seven positive growth comments for every cautious comment, up from December’s ratio of 6-to-1.”

The following manufacturing sectors reported moderate to strong growth in January: machinery; food, beverage and tobacco products; transportation equipment; computer and electronic products; chemical products; and petroleum and coal products.

“Manufacturing performed well for the 20^th straight month, with demand and consumption registering month-over-month growth,” Fiore said. “Meeting demand remains a challenge, due to hiring difficulties and labor turnover at all tiers. For the third month in a row, Business Survey Committee panelists’ comments suggest month-over-month improvement on hiring, offset by backfilling required to address employee turnover at a higher rate, supplier performance and improvements in the transportation sector.”

In the chemical products industry, a respondent said “we are experiencing massive interruptions to our production due to supplier COVID-19 problems limiting their manufacturing of key raw (materials) like steel cans and chemicals.”

Other industry respondents noted labor and materials shortages, inflation and transportation issues and order backlogs.

“Transportation, labor and inflation issues continue to hamper our supply chain and ability to service our customers,” according to a respondent in the transportation equipment industry. “Fortunately, it’s also hampering our competition as well. Ultimately, the biggest impact is at the consumer level, as (price increases) continue to get passed through.”