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Economy is Growing Says ISM, But Meeting Demand is Still Challenging

Economy is Growing Says ISM, But Meeting Demand is Still Challenging

May 4, 2021
”Recent record-long lead times, wide-scale shortages of critical basic materials, rising commodities prices and difficulties in transporting products are continuing to affect all segments of the manufacturing economy,” says Timothy Fiore.

Growth continues as the overall economy posted its 11the consecutive month of growth, according to the ISM report released on May 3.

The manufacturing sector also grew in April.

All of the six biggest manufacturing industries — Fabricated Metal Products; Chemical Products; Food, Beverage & Tobacco Products; Computer & Electronic Products; Transportation Equipment; and Petroleum & Coal Products, in that order — registered moderate to strong growth in April.

“Members reported that their companies and suppliers continue to struggle to meet increasing rates of demand due to coronavirus (COVID-19) impacts limiting availability of parts and materials,” said Timothy R. Fiore, of ISM, in a statement.” Recent record-long lead times, wide-scale shortages of critical basic materials, rising commodities prices and difficulties in transporting products are continuing to affect all segments of the manufacturing economy. Worker absenteeism, short-term shutdowns due to part shortages, and difficulties in filling open positions continue to be issues that limit manufacturing-growth potential.”

The April manufacturing PMI registered 60.7%, a decrease of 4 percentage points from the March reading of 64.7%.

Other Index information is as follows:

  • The New Orders Index registered 64.3%, declining 3.7 percentage points from the March reading of 68%.
  •  The Production Index registered 62.5% a decrease of 5.6 percentage points compared to the March reading of 68.1%.
  • The Backlog of Orders Index registered 68.2% 0.7 percentage point higher compared to the March reading of 67.5%. The Employment Index registered 55.1%, 4.5 percentage points lower than the March reading of 59.6^.
  • The Supplier Deliveries Index registered 75%, down 1.6 percentage points from the March figure of 76.6%.
  • The Inventories Index registered 46.5%, 4.3 percentage points lower than the March reading of 50.8%.
  •  The Prices Index registered 89.6%, up 4 percentage points compared to the March reading of 85.6%.
  • The New Export Orders Index registered 54.9%, an increase of 0.4 percentage points compared to the March reading of 54.5%.
  • The Imports Index registered 52.2%, a 4.5-percentage point decrease from the March reading of 56.7%.”

“All of the six biggest manufacturing industries — Fabricated Metal Products; Chemical Products; Food, Beverage & Tobacco Products; Computer & Electronic Products; Transportation Equipment; and Petroleum & Coal Products, in that order — registered moderate to strong growth in April.

 “Manufacturing performed well for the 11th straight month, with demand, consumption and inputs registering strong growth compared to March. Labor-market difficulties at panelists’ companies and their suppliers persist. End-user lead times (for refilling customers’ inventories) are extending. This is due to very high demand and output restrictions, as supply chains continue to respond to strong demand amid COVID-19 impacts,” says Fiore.

What Respondents are Saying:

  • “The current electronics/semiconductor shortage is having tremendous impacts on lead times and pricing. Additionally, there appears to be general inflation of prices across most, if not all, supply lines.” (Computer & Electronic Products)
  • “Upstream producers/suppliers are back online and working towards full rates. Demand is outpacing supply and will continue into the third quarter when the supply chain is expected to be refilled. Supply/demand should be more balanced in Q3/Q4, but demand will continue as customers run hard to meet their demand and rebuild inventory.” (Chemical Products)
  • “Continued strong sales; however, we have had to trim some production due to the global chip shortage. Hasn’t affected inventories greatly yet, but a continued decrease will begin to reduce available inventories if we don’t recover chip supply shortly.” (Transportation Equipment)
  • “Business is picking up as restaurants open.” (Food, Beverage & Tobacco Products)
  • “Oil production has been steady, along with market prices and capital expenditures.” (Petroleum & Coal Products)
  • “Steel prices are crazy high. The normal checks on the domestic steel mills are not functioning — imported steel is distorted by the Section 232 tariffs.” (Fabricated Metal Products)
  • “It’s getting much more difficult to supply production with materials that are made with copper or steel. Lots of work on the floor, but I am worried about getting the materials to support.” (Electrical Equipment, Appliances & Components)
  • “Market capacity in most areas is oversold, with no realistic improvement on the horizon. In fact, it appears that demand will continue to strengthen, leading to more significant disruptions.” (Furniture & Related Products)
  • “In 35 years of purchasing, I’ve never seen everything like these extended lead times and rising prices — from colors, film, corrugate to resins, they’re all up. The only thing plentiful at present, according to my spam filter, is personal protective equipment [PPE].” (Plastics & Rubber Products)
  • “The metals markets remain very challenging at best. Shortages of raw materials have increased, especially in aluminum and carbon steel. Prices continue to rapidly increase. Transportation and trucking [are] also a big challenge.” (Primary Metals)
  • “Demand continues to be very strong. Supply chain delays hamper our availability and ability to sell more.” (Machinery)

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