ISM: Supply Issues Badger July Manufacturing as Growth Slows Again

The Institute for Supply Management reported August 2 that its Manufacturing PMI fell 1.1 points to 59.1% in July. The reading indicates that U.S. manufacturing continued to grow, albeit at a slower rate than it had in June. While the manufacturing sector has grown now for fourteen months running, this is the second month the rate of growth has slowed.

Surveyed manufacturing executives reported similar issues as previous months, including June: Very strong demand, but serious difficulty in filling it. Executives in almost all major manufacturing industries reported a combination of limited supplies and labor.

The ISM’s production index fell 2.4 points to 58.4% while its new orders index dropped by 1.1 to 64.9%, indicating that both—like the overall manufacturing PMI—are growing at a slower rate than previously. In a bright spot, the employment index rose 3 points to 52.9%, recovering from June, when it fell to 49.9% indicating contraction in manufacturing employment.

Most other indexes mirrored the production and new orders indexes by growing at a slower rate, including imports, new export orders, and prices. Imports fell by 7.3 points to 53.7%, and new export orders fell by half a percentage point to 55.7%. The prices index, which hit 92.1% last June, fell 6.4 points to 85.7—a figure that remains strikingly high, reflecting high demand for products. Supplier deliveries continued to slow, continuing a long-running trend.

“As we enter the third quarter, all segments of the manufacturing economy are impacted by near record-long raw-material lead times, continued shortages of critical basic materials, rising commodities prices and difficulties in transporting products,” said Timothy Fiore, Chair of the ISM’s manufacturing business survey committee.

As in previous months, the ISM’s lists of commodities in short supply and up in price remained inflated. Many of the commodities on those lists made repeat appearances from June, including aluminum, polypropylene, steel, copper and lumber. The prices for each of these commodities have been increasing for at least a year now, although notable copper and lumber were listed as both up and down in price for July.

Items still in short supply for at least 6 months included electrical and electronic components, plastic products, semiconductors, steel, hot rolled steel, and steel products.

A surveyed executive in the transportation equipment industry specifically called out shortages of semiconductors as a thorn in their side regarding production. “Strong sales continue, and inventories are low as the chip shortage is keeping production numbers down—we have idled several of our assembly plants to reduce the strain on the chip supply base,” they reported.

A nonmetallic mineral products leader said that while sales are well above last year’s, filling demand is “just not possible” thanks to logistics and labor shortages. “We don’t anticipate this ending until well into 2022,” they predicted.

Other respondents were more optimistic, and reported slowly improving conditions. A chemical products executive said supply chains are “filling up” like a garden hose, “starting upstream and slowly flowing downstream.”

“Transportation (equipment and drivers) is the current pinch point, more so than material shortages,” they said.