U.S. manufacturing activity cooled a bit in November as a resurgence in Covid-19 cases pressured factory employment and production levels. The Institute for Supply Management’s PMI declined by 1.8 percent -- to 57.5 -- from October’s level of 59.3.
Although workforce limitations are being felt across the supply chain, the PMI remains above 50, indicating expansion.
“Suppliers are still experiencing labor shortages resulting in component constraints,” one tech executive told the ISM. “However, we're seeing life from customers, so there's a positive outlook moving into the first quarter of 2021.”
November’s employment index fell back into contraction territory – to 48.4 percent – from the October reading of 53.2. “There’s a lot going on there,” said Tim Fiore, chair of the ISM’s manufacturing survey committee. There’s no shortage of jobs, he explained -- companies and suppliers continue to operate in reconfigured factories, but absenteeism, short-term shutdowns to sanitize facilities and difficulties in returning and hiring workers are causing strains that will likely limit future manufacturing growth potential.
“Everyone knows someone that has had Covid,” Fiore said. “People want to work in a safe environment. Older employees aren’t retuning to work as they’re concerned about the virus. The skilled labor shortage is nothing new, but competition for trained workers has raised wages. Many employees are switching jobs.”
Announcements regarding Covid-19 vaccines came late in the ISM’s November survey cycle; December will likely show the impact of the news.
November’s new orders index registered 65.1 percent, down 2.8 percentage points from October. The production index was 60.8 percent, a decrease of 2.2 percentage points.
Even with some lost momentum, manufacturing remains well above pre-pandemic levels. Steady demand and low customer inventories continue to drive output growth despite the lingering uncertainty posed by the coronavirus.
Order backlog increased by 1.2 percent to 56.9 – a positive sign for future demand. New export orders grew 2.1 percent to 57.8. Imports registered 55.1 percent, a 3-percentage point decrease from the October reading of 58.1. Customer inventories – at 36.3 percent -- were at their lowest levels since June 2010.
Inputs – measured by supplier deliveries, inventories and imports – continued to indicate constraints to production expansion. Transportation disruption is also playing a role. Products arriving at U.S. ports are taking longer to unload and clear Customs because of high volumes and scarce labor. Shipping containers, which remain in short supply, are keeping ocean freight rates high. Land transit has been inconsistent for months, said Fiore, due in part to labor and equipment constraints.
The good news, he added, is that these events are driven by increased demand.
Among the six biggest manufacturing industries, five (fabricated metal products; chemical products; computer and electronic products; transportation equipment; and food, beverage and tobacco products) registered solid growth in November.
“Manufacturing performed well for the sixth straight month, with demand, consumption and inputs registering growth, but at slower rates compared to October. Labor market difficulties, both current and anticipated, at panelists’ companies and their suppliers will continue to dampen the manufacturing economy until the coronavirus crisis ends,” he concluded.
Manufacturing’s recovery—even in the midst of Covid—is filtering into other parts of the tech industry. Syncron, an after-market software and services provider, is seeing activity among new products — where manufacturers plan for lifecycle management – and after-sales service and support, according to Venkat Eswara, vice president for product marketing. Aerospace, automotive, military and medical equipment are designed to last decades, he explained. OEMs need to maintain inventory visibility for maintenance, repair and operations (MRO). As parts and equipment are often stored at dealers or distributors, OEMs need the ability to find them in real-time.
“Manufacturers are always looking to drive efficiency,” he said.