U.S. manufacturing activity expanded for a twelfth straight month in May and executive optimsm increased threefold, according to the Institute for Supply Management’s latest monthly Report on Business. The ISM reports manufacturing activity advanced a half percent to a reading of 61.2%, completing a full year of expansion.
New orders, production and employment all expanded in May. Meanwhile, supplier deliveries slowed at a slower rate, raw material inventories grew, prices continued to trend up and both imports and exports posted growth.
Optimism among manufacturing executives increased threefold over the past month, with the ISM registering 36 positive comments for every one negative comment (compare to the 11 to 1 ratio reported last month).
However, manufacturers continue to face high prices and shortages of both materials and skilled labor.
One executive in the machinery sector reported, “Business is good, but labor and raw materials are becoming very problematic, driving increases in costs.”
Said Timothy Fiore, Chair of the ISM committee, “The manufacturing economy continued expansion in May. Committee panelists reported that their companies and suppliers continue to struggle to meet increasing levels of demand. 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.”
Sixteen of eighteen industries included in the ISM’s survey reported growth in May, with growth strongest in furniture & related products; non-metallic mineral products; plastics & rubber products and textile mills.
The ISM listed several commodities in short supply, including aluminum, steel; printed circuit boards, semiconductors, plastic resins, plastic containers and more. Supply shortages were mentioned frequently by manufacturing executives in response to the ISM.
Said one executive in the nonmetallic mineral products sector said, “The continued global supply chain tightness and raw material shortages from the Gulf (winter storms) make it less likely that any business can recover this year. Demand is strong, but what good is that if you cannot get the materials needed to produce your finished goods?”
Said another in the furniture/related products sector said, “Business is good, but labor and raw materials are becoming very problematic, driving increases in costs.”
Prices also remained a sticking point for many companies. A number of commodities were up in price, including many types of steel, temporary labor, lumber, packaging supplies, rubber products and corrugated boxes.
New Orders Rebound Strongly
New orders expanded briskly in May, climbing 2.7% to a reading of 67%. Any reading over 50 indicates expansion. April marks the metric’s twelfth consecutive month of growth.
One executive in the computer & electronics products industry said, “Supplier performance -- deliveries, quality, it’s all suffering. Demand is high, and we are struggling to find employees to help us keep up.”
Sixteen of eighteen industries reported an increase in new orders for May, led by nonmetallic mineral products; furniture & related products; electrical equipment, appliances, & components; paper products; and primary metals.
Production
Production also expanded in May, but at a slower rate in than reported in April, easing 4% to a reading of 62.5% -- still well into expansion territory. This represents the twelfth straight month of growth for manufacturing output.
Thirteen of eighteen industries reported advances in output in May, led by nonmetallic mineral products; furniture equipment, appliances & components; miscellaneous manufacturing and fabricated metals products.
Employment
The ISM employment index also expanded at a slower rate, registering 50.9%, 4.2% lower than April’s reading. With manufacturing job openings hitting a record of 700,000 jobs in March, a scarcity of skilled labor continues to plague the sector. Many of the comments from respondents addressed labor issues, with one executive in the computer & electronic products industry reporting, “Demand is high, and we are struggling to find employees to help us keep up.”
Another in the food, beverage & tobacco products industry reported, “Difficulty finding workers at the factory and warehouse level is not only impacting our production, but suppliers’ as well.”
Nine of eighteen industries reported employment growth in May, with growth strongest in electrical equipment, appliances & components; textile mills; primary metals; and furniture/related products.
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