The U.S. manufacturing sector reached its fifteenth straight month of expansion in August, according to the Institute of Supply Management’s survey of supply executives released September 1st.
The ISM reports its index of manufacturing activity edged up 0.4% to a reading of 59.9%. U.S. manufacturing activity remains far into expansion territory, with any reading over 50 indicating expansion.
In August, new orders and production continued to grow rapidly. Meanwhile, backlogs grew, raw materials inventories edged up, and both exports and imports grew.
Notable this month was the Prices Index, which sank another 6.3% to 79.4% -- the first time the index has fell below 80% since December 2020. This means that prices are still increasing, but at a slower rate compared to previous months. Prices have been at historic levels, hitting a 42-year record high in June before finally easing back 6.4% in July. Although manufacturers still continue to face inflated prices for many products, the slower rate of increase is welcome news.
Employment, which expanded in July, fell back into contraction in August as a scarcity of labor continued to plague the sector.
Optimism among manufacturing executives was strong, though optimism has been waning since the spring. The ISM registered 8 positive comments for every one negative comment. By contrast, 13 positive comments for every one negative comment were recorded in July; 16 in June and 36 in May.
What Manufacturers Are Saying
Timothy Fiore, Chair of the ISM committee said that survey panelists reported their companies and suppliers are struggling at unprecedented levels to meet the hike in demand. Fiore referred to a myriad of challenges, including “Record-long raw material lead times, continued shortages of critical basic materials, rising commodities prices and difficulties in transporting products." Fiore also references the resurgence of COVID infections across the nation as compounded these issues, with “worker absenteeism, short-term shutdowns due to parts shortages, difficulties in filling open positions and overseas supply chain disruptions – that continue to limit manufacturing growth potential."
One executive in the food, beverage & tobacco products sector reported, “Supply chain functions have been relentlessly challenging. All things from freight (both over the road and ocean), already constrained labor forces are further exacerbated by COVID-19 absenteeism. Also, high prices everywhere are wearing our employee base down.”
Fiore also noted severe COVID-related disruptions for those companies with partners in Southeast Asia. “Ports congestion in China continues to be a headwind as transportation networks remain stressed."
Related: Resources for Building a More Resilient Supply Chain
One executive in the computer & electronic products sector reported “Some factories have been impacted by COVID-19 cases. Malaysian government says factories can operate at only 60 percent of capacity.”
Fifteen of eighteen industries included in the ISM’s survey reported growth in August, with growth strongest in furniture & related products; computer and electronic products, machinery, primary metals, and electrical equipment.
Supply shortages continue to shake up supply chains. The ISM listed several commodities in short supply, including adhesives and paint; semiconductors, steel, lumber, metal components, electronic components, cable assemblies and more.
Supply shortages were mentioned numerous times by industrial executives in response to the ISM.
Said one executive in the electrical equipment, appliances and components sector, “Business is strong. Part shortages are our largest business constraint. We cannot fulfill orders to customers in reasonable lead times. Now booking out into 2022, and it will get worse as we hit our cyclical high demand in the fourth quarter.”
Another in the machinery sector reports “Customer order backlog continues to climb because we are unable to raise production rates due to supplier parts and manpower challenges. Continue to see price increases with key commodities, and logistics is an ongoing challenge that has no end in sight.”
New Orders Expand Strongly
The ISM’s New Order Index expanded strongly in August, up 1.8% to a reading of 66.7%. August’s reading marks the fifteenth consecutive month of growth in new orders.
Fourteen of eighteen industries reported an increase in new orders for July, led by furniture & related products; computer & electronic products; printing and related support activities; and machinery.
Production Expands
Production continued to surge in August as manufacturers scrambled to keep up with demand. The Production Index registered 60% in August, up 1.6% from July. August represents the fifteenth straight month of growth for manufacturing output.
Thirteen of eighteen industries reported advances in output in August, led by furniture and related products; wood products; printing and related support activities; and computer & electronic products.
Employment Contracts
For months now, the ISM’s employment index has reflected hiring struggles amongst manufacturers. This month, the index slipped back into contraction again, falling 3.9% to a reading of 52.9% as companies faced a record labor shortage.
Said Fiore “Strong new-order levels, low customer’ inventories and expanding backlogs belied the reduction in employment strength.” Fiore also referred to an overwhelming majority of respondents reporting plans to hire, while many note an increase in employee turnover rates.
Related: Reducing Employee Turnover in Your Manufacturing Facility
Many of the comments from respondents addressed labor issues, with one executive in the fabricated metals industry reporting, “Continue to be unable to hire hourly personnel or machine operators due to few applicants. Steel and aluminum remain in short supply. New business continues to grow and come in. Unable to handle influx of orders without staff, both hourly and salaried.”
Just seven of eighteen industries reported employment growth in August, with growth strongest in electrical equipment, appliances & components; furniture & related products; primary metals; computer & electronic products; and machinery.
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