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ISM: Manufacturing Employment Index Dips Into Contraction Again

Sept. 2, 2021
Manufacturing growth accelerated slightly last month despite ongoing difficulties.

The Institute for Supply Management’s latest PMI on manufacturing shows the sector has returned to accelerating growth. The main index for U.S. manufacturing rose 0.4 points to 59.9% in August after slipping 1.1 points in July. An index above 50% indicates the sector is growing.

The ISM’s indexes of production and new orders both rose about 2 points, sustaining growth for a fifteenth month. The manufacturing employment index dropped 4 points to 49.0%, indicating a faster contraction than it saw in June, when it fell into contraction for the first time since the difficult summer of 2020.

The indexes for trade—new export orders and imports—both marked modest growth, sustaining a 14-month growth trend for both.

August now marks the fifteenth month running that the ISM’s PMI has shown sustained manufacturing growth, which has been fueled by consumer demand spiking amidst the COVID-19 pandemic even as it has been hampered by COVID-related supply issues. Scattered new surges of the virus in the U.S. and abroad are contributing to those difficulties now, said ISM President Timothy Fiore.

“The new surges of COVID-19 are adding to pandemic-related issues—worker absenteeism, short-term shutdowns due to parts shortages, difficulties in filling open positions and overseas supply chain problems--that continue to limit manufacturing growth potential,” Fiore said.

Supplier deliveries continued to slow, but did so at a slower rate than previously last month. On that index, for which a figure above 50% indicates slower deliveries, August’s figure dropped 3 points to 69.5%. Supplier deliveries, according to the ISM, have been slowing now for five and a half years straight.

In a sign of persistently strong demand, the ISM’s prices index hit 79.4% in August—a whopping 6.3 points lower than it was in July, but still a remarkably high figure for rising prices.

The six largest manufacturing subsectors—computers and electronics, fabricated metal, chemicals, food and beverages, transportation equipment, and petroleum and coal—marked growth last month, and manufacturing executives surveyed by the ISM remained positives.

“Business is strong,” said an executive at an electrical equipment company who noted that part shortages are their biggest obstacle. “We cannot fulfill orders to customers in reasonable lead times,” they said, and they anticipated the problem will get worse before it gets better thanks to high demand in the fourth quarter. Executives in computers and electronics and transportation equipment remarked on the difficulty of sourcing computer chips, while chemical products, furniture, plastics and rubber, and fabricated metal leaders mentioned other material shortages.

Notable commodities the ISM reports as in short supply for four months or more include aluminum; aluminum products; electrical and electronic components; temporary labor; ocean freight; plastic products; plastic resins; semiconductors; and several kinds of steel, including hot rolled and stainless. Electrical components have now been difficult to source for 11 months now, just shy of a full year.

The supply shortages have also pushed commodity prices up significantly. While the list of commodities up in price is even longer than the one of supplies in short supply, several items stand out for their longevity on the list: Prices for aluminum, lumber, plastic resins, polypropylene, steel, hot rolled steel, steel products, and stainless steel have all increased for 12 months running or longer as of August.

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