U.S. manufacturing powered through supply chain constraints in August to maintain a 15-month streak of expansion. New order and production levels underlined sustained demand while factories continued to struggle to find components, materials and workers. Tech companies led growth in August despite semiconductor and other supply shortages.
The Institute for Supply Management’s PMI increased 0.4 percent to 59.9 in August – above expectations according to financial media. Any number above 50 indicates manufacturing expansion. Production was up 1.6 percent to 60; new orders grew 1.8 percent to 66.7; and imports and exports expanded to 54.3 and 56.6, respectively.
“Manufacturing performed well for the 15th straight month, with demand, consumption and inputs registering month-over-month growth in spite of unprecedented obstacles,” said Tim Fiore, chair of the ISM’s manufacturing survey committee. “Panelists’ companies and their supply chains continue to struggle to respond to strong demand due to difficulties in hiring and a clear cycle of labor turnover as workers opt for more attractive job conditions. Disruptions from Covid-19, primarily in Southeast Asia, are having dramatic impacts on many industry sectors."
In computers and electronics, new orders registered in the high 70s; production levels were above the mid-60s and inventory at factories reached 60 from the low-50s in July. Backlog also expanded to the mid-70s. Manufacturers likely have high levels of work-in-progress as they await delivery of a key material or part, Fiore said.
“The chip shortage is impacting supply lines,” one tech executive said. “So far, we’ve been able to manage it without impacting clients.”
“Some factories have been impacted by Covid-19 cases,” said another. “[The] Malaysian government says factories can operate at only 60 percent of capacity.”
Malaysia’s restriction is putting interconnect, passive and electromechanical (IP&E) components on the endangered-supply list. The ISM reports capacitors have been scarce for two months and semiconductors for nine.
Covid has also taken its toll on the labor force. ISM’s overall employment index decreased by 3.9 percent to 49.0 in August. The new surges of Covid-19 are adding to pandemic-related issues, said Fiore -- worker absenteeism, short-term shutdowns due to parts shortages, difficulties in filling open positions and overseas supply chain problems — that limit manufacturing-growth potential.
“The story continues to be employment,” said Fiore. “Manufacturers would be hiring if they could find workers.” September could mark a bounce back in the labor force as students return to school and enhanced unemployment benefits expire.
It appears inflation has reached its peak. Ongoing materials and component shortages have boosted prices for both manufacturers and consumers. The ISM’s measure of prices paid by manufacturers fell to an eight-month low of 79.4 from a reading of 85.7 in July. ISM’s price index reached a record high of 92.1 in June.
There are no indications that logistics services – which also have gone up in price – will see any relief. August is likely to set a new record for monthly U.S. ocean import volumes, according to cargo marketplace Freightos. In response, ocean carriers have increased transpacific capacity by approximately 22 percent. But with no way to increase port capacity, those additional ships are contributing to the new record number of vessels waiting for days outside of LA/Long Beach for a berth to open.
Freightos reported Covid-related disruptions are having a big impact on air cargo capacity and rates – now four times higher than pre-pandemic levels – out of China to the U.S. Ground handling at many U.S. air cargo hubs is overwhelmed with shipments arriving at Chicago’s O’Hare airport still stuck for days.