The manufacturing sector continued growing for an eighth straight month in January as the Institute for Supply Management’s Purchasing Manager’s Index for sector growth fell 1.8 points to 58.7% compared to December. The overall economy also grew, sustaining a parallel streak with manufacturing.
The ISM’s biggest indicators for the direction of the manufacturing economy, production and orders, both continued to grow, albeit at a slower rate than they had in the last month of 2020. The new orders index fell 6.4 points to 61.1%, and the production index fell 4 points to 60.7%, and both held on to an eight-month growth streak.
Employment growth, a weak spot for manufacturing in previous years, accelerated relative to December as the index rose 0.9 points to 52.6%. Prices in manufacturing, which like many of the ISM’s other metrics, have grown for 8 months, also accelerated, adding 4.5 points to close for the month at 82.1%.
But despite all the positive news for manufacturing production, prices, and employment, supplier deliveries remain a sore spot. If the current trend lasts through February, supplier deliveries will have slowed every month for 5 years straight. The ISM’s index for supplier deliveries, which uses higher numbers to indicate slower deliveries, added 0.5 points to land at 68.2%.
In short: business is booming, and pandemic-smacked suppliers are swamped.
“We are seeing significant cost increases in logistics and raw materials” and “huge logistics challenges,” said one surveyed machinery executive, alongside a supply base “struggling to keep up with demand” that occasionally disrupts production.
The prices of some commodities have mirrored growth in the manufacturing sector. Aluminum has been increasing in price for eight months, as has copper. Polypropylene has been increasing in price for seven. And the COVID-19 pandemic has kept personal protective gloves in short supply for 11 months running.
The old issue of finding available workers continues to be a thorn in the side for some companies. “Labor continues to be one of our largest challenges,” reported a food and beverages CEO. “Business is improving, but we are still struggling with a shortage of available labor” in the primary metals business, said another. And one executive noted the continued presence of the coronavirus: “We have had an increase in employees testing positive for COVID-19, negatively impacting manufacturing,” they said.
Yet the strong business outlook had at least one executive planning new capital spending. “The industry outlook is optimistic,” according to a CEO of a company in the plastics and rubber field, who is “looking at investing in new equipment for anticipated demand later this year.”
Ethan Karp, President and CEO of MAGNET, a nonprofit manufacturing consulting group, noted that the “extreme uncertainty” of the pandemic period is abating, allowing manufacturers to make long-term decisions again.
“Labor remains the biggest challenge, which in many ways is back to normal,” wrote Karp, in an email to IndustryWeek. “Pre-COVID, during-COVID, and surely post-COVID, we will still have a labor shortage. Automation, investment in new technologies, and investment in creating pipelines are critical to solving this long-term. More manufacturers are now considering wage raises at the frontlines to see if that makes an impact because they see that even with high unemployment, the workforce challenges remain.”
Despite the challenges of unsteady employee bases and supplier deliveries, January’s results appear to show a manufacturing sector increasingly optimistic about the medium-term future. “Eight months of solid growth as reported by ISM seems to have given a bit of comfort,” Karp wrote.