U.S. manufacturing activity in April expanded at its slowest pace in nearly two years amidst high levels of employee turnover and Covid lockdowns in China. The Institute for Supply Management’s factory index, the PMI, decreased by 1.7 percent to 55.4 as the employment, production and new orders indexes slipped slightly from March.
Any number above 50 indicates growth, so manufacturing remains at a healthy level despite multiple headwinds. There are no indications demand for U.S.-made products is declining, said Tim Fiore, chair of the ISM’s manufacturing survey committee. Customer inventories remain low and factory backlogs high.
The biggest problem remains getting enough workers – April’s employment index declined by 5.4 percent. “Manufacturers just can’t hire enough people,” said Fiore. “Backfilling jobs is the biggest challenge.”
ISM panelists reported higher rates of quits compared to previous months, with fewer panelists reporting improvement in meeting head-count targets. Despite increased wages, employment hasn’t bounced back to pre-pandemic levels and workers are changing jobs more frequently. The situation might ease as recent college graduates join the workforce, Fiore added.
Overall, “the U.S. manufacturing sector remains in a demand-driven, supply chain-constrained environment,” he said. “In April, progress slowed in solving labor shortage problems at all tiers of the supply chain. Instability in global energy markets continues and surcharge activity across all industry sectors remains.”
New orders in April decreased by 0.3 percent to 53.5 and production by 0.9 percent to 53.6. Input — expressed as supplier deliveries, inventories, and imports — continues to constrain production. Supplier deliveries, inventories and imports all slowed from the prior month. Factory inventory may be exceptionally low because Q1 closed in March.
“The shutdowns in China due to a new Covid-19 wave are causing supply concerns for late second quarter and early third quarter,” one manufacturer told the ISM. “We have extended lead times to customers and are ordering product from China to cover demand through Q4 and early 1Q 2023.”
Record-high lead times persist for capex and materials, Fiore said. There was some easing in pricing, however: that index declined by 2.5 percent to 84.6.
In electronics, component lead times frequently extend beyond 50 weeks and some by more than a year. It’s unlikely that will improve, according to analysts, who point out China’s “zero-Covid” policy has constrained the nation’s exports. Several U.S. manufacturing sectors rely on China for metals, materials and subassemblies.
“Geopolitical uncertainty and wide-ranging impacts from the Russian invasion of Ukraine, persistent global inflation and recurring Covid-19 outbreaks continue to wreak havoc and test beleaguered industry supply chains,” said Steve Flagg, CEO of market intelligence firm Supplyframe. Data tracked by the firm indicate that prices will continue to increase and lead times will get longer.
The ISM’s computer and electronics sector performed well in April after softening in March. The ECIA reported corresponding information – its component sales sentiment for April beat expectations by more than 13 points as the index grew from 113.6 to 119.6. Any number above 100 indicates growth.
Survey participants still expect strength in May, but the index softens to 111.5, a drop of 8.1 points and the lowest level since November 202.
ISM panel sentiment remained strongly optimistic regarding demand, Fiore said, although the three positive growth comments for every cautious comment was down from March’s ratio of 6-to-1. Panelists continue to note supply chain and pricing issues as their biggest concerns.