The war in Ukraine is unlikely to slow the U.S. manufacturing economy which expanded 1 percent in February to reach a PMI of 58.6. “Ukraine is not that integrated into our national economy; nor is Russia,” said Tim Fiore, chair of the Institute for Supply Management’s monthly manufacturing survey. “Supply of some materials – such as aluminum – may get worse but I don’t see [the conflict] dampening expansion at this point.”
Oil prices, which impact the global economy, may present some headwinds, he added. But February’s PMI and most of its supporting indexes indicate long-term demand for U.S. products remains robust. Any number above 50 reflects industry expansion.
New orders grew 3.8 percent to 61.7 in February; production increased 0.7 percent to 58.5. Pricing pressure, although high, eased a bit, declining 0.5 percent to 75.6. Backlog, another indicator of future demand, grew at its fastest pace in more than a decade – 8.6 percent – to 65.0.
That said, the “electronic[s] supply chain is still a mess,” one tech executive told the ISM. The chip supply remains critical; component lead times have expanded; and materials contamination is impacting the production of some memory products.
The computer and tech segment expanded in February, according to the ISM; employment, production and supplier deliveries all improved. Inflation eased slightly and future signals remain strong: backlog jumped to 86 percent and customer inventories remain too low.
A customer survey conducted by electronics distributor Avnet Inc. found customers have experienced significant impact due to the shortages; among those, 93 percent said the strongest impact was related to lead times. Respondents also said that delayed production schedules (74 percent) and higher prices (72 percent) have affected their business.
“The U.S. manufacturing sector remains in a demand-driven, supply chain-constrained environment,” said Fiore. “The Covid-19 omicron variant remained an impact in February; however, there were signs of relief, with recovery expected in March. A higher-than-normal quits rate and early retirements continued.” ISM’s employment index slowed by 1.6 percent last month to 52.9.
Demand expanded, with both new orders and new exports orders increasing in February. Customers’ inventories remain very low, and backlog increased by historically high levels. Consumption (measured by production and employment) also grew, but at a slower rate than January.
“Demand continues to be strong, increasing our backlog,” said a manager in the electrical equipment and components market. “Production has been more consistent due to availability of parts, but we are not able to increase builds to cut into the backlog.”
ISM panelists indicate their ability to hire continues to improve, but to a lesser degree than in January. Challenges with turnover (quits and retirements) and resulting backfilling continue to plague panelists’ efforts to adequately staff their organizations. Production expanded satisfactorily, despite staffing and supplier delivery headwinds.
Inputs — expressed as supplier deliveries, inventories, and imports — continued to constrain production expansion. Supplier deliveries slowed at a slightly higher pace than in January while the inventories and imports indexes also grew.
U.S. manufacturers remain optimistic, ISM reported, with 12 positive growth comments for every cautious comment, up from January’s ratio of 7-to-1. “As long as demand is strong we can work through the other challenges,” said Fiore.
Avnet’s survey found electronics customers expect challenges. Three-fourths of those experiencing production delays said they have lasted up to six months, while a strong majority of overall respondents expect lead times to worsen and prices to rise in the next year and a half.
Bloomberg reported lead times for materials rose to 97 days; for capital equipment they increased to 173 days, and for MRO supplies to 50 days.