Optimism Amongst U.S. Manufacturers Climbs as Sector Posts 21st Straight Month of Growth

Activity in the U.S. manufacturing sector accelerated in February, while manufacturer optimism climbed, in the sector’s 21st straight month of expansion, according to the Institute for Supply Management’s survey of manufacturing executives released March 1st.

The ISM reports its index of manufacturing activity rose 1% in February to a reading of 58.6%, driven by a hike in new orders, backlogs, supplier deliveries, and exports.

The New Orders index increased 3.8% to a reading of 61.7%, while the Production Index fell 1.6% to 59.4%. Backlogs spiked 8.6% to 65%, while supplier deliveries slowed at a slightly faster rate, edging up 1.5% to 66.1%. Exports outperformed imports, with the New Exports Order Index rising 3.4% to 55.4%, while imports decreased 0.3% to 55.1%.

Meanwhile, prices eased after spiking in January, falling 0.5% to a reading of 75.6%. Several commodities, such as semiconductors, steel products, packaging, and electronic components have seen 12+ months of elevated prices, while others such as plastic resins, paper products, solvents, and adhesives and paint have risen in price over the past 2-3 months.

It remains to be seen how the crisis in Ukraine will impact the sector, but some early data suggests further price inflation and supply chain issues for the U.S. manufacturing sector. Read more: The Potential Impact of the Ukraine Crisis on U.S. Manufacturers.

Timothy Fiore, Chair of the ISM committee stated the sector “remains in a demand-driven, supply chain-constrained environment. The COVID-19 omicron variant remained an impact in February; however, there were signs of relief, with recovery expected in March.” Fiore also noted an uptick in the quits rate and early retirements, adding to continued staffing challenges. This was reflected in the ISM’s employment index, which eased 1.6% in February to a reading of 54.5%.

Optimism among manufacturing executives was significantly stronger compared to January, with 12 positive comments for every one negative comment, compared to January’s 7:1 ratio.

In February, sixteen of eighteen industries reported growth, strongest in apparel, leather & allied products; textile mills, paper products, transportation equipment, machinery and miscellaneous manufacturing.

What Manufacturers Are Saying About Business Conditions

Comments from manufacturers reflected continued labor and supply chain constraints amid heightened demand.

One executive in the electronics industry stated the electronic supply chain is “Still a mess.” The ISM lists electrical and electronic components, PBCs, and semiconductors, among others, as being in short supply for 12+ consecutive months.

Another in the machinery sector stated “We have seen year-over-year revenue growth of about 10 percent due to markets coming back. However, in the automotive area, the microchip shortage is causing slowness in growth.”

One respondent in the textile mills sector offered a look ahead, stating their company is “expecting a year of strong demand, higher prices, and continued supply chain challenges.”

Many reported strong sales and heightened demand. Said one executive in electrical equipment, “Demand continues to be strong, increasing our backlog. Production has been consistent due to availability of parts, but we are not able to increase builds to cut into the backlog.”

Another in the fabricated metals sector reported “Demand for steel products has increased to historic levels, driven by the automotive and energy industries.”

Catch the Wave of Historic U.S. Manufacturing Expansion

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