The Institute for Supply Management reported November 1 that manufacturing growth slowed slightly in October. The group’s manufacturing PMI for October registered 60.8%, just 0.3 points lower than it was in September. Main indexes for new orders and production similarly grew at a slower rate than previous, while growth in employment and new export orders accelerated.
Manufacturing production continued to grow at a rate almost unchanged from September: The ISM’s production index fell a tenth of a point to 59.3%. The manufacturing PMI, production index, and new orders index have all continued to grow for each of the 17 months between October 2021 and April 2020.
Supply Versus Demand
Demand, as measured by the ISM’s new orders indexes, expanded, although domestic demand grew at a slower rate than two months ago. The new orders index fell to 59.8% from 66.7% in October, while new export orders rose by 1.2 points to 54.6%, indicating accelerating export demand. An index of customer inventories did not change, and the backlog of orders index remained elevated at 63.6.
The limiting factor on manufacturing growth right now is still supply availability, according to ISM panel respondents. “Demand continues to be strong, but we continue to be held back by supply chain issues—logistics delays, as well as capacity and labor issues at suppliers,” commented an electrical equipment executive.
“We have become much more supply driven versus demand driven, due to shortages of labor, materials and freight,” said another supplies manager at a furniture-related company, who said their company was considering raising prices for customers a third time. A transportation equipment executive said their company was diverting scarce semiconductors to higher-margin vehicles and limiting production elsewhere.
According to the ISM’s survey, 24 commodities are in short supply as of last month. Electrical components have been scarce the last 13 months, one month more than hot rolled steel, and electronics, semiconductors, and steel in general have been hard to acquire for 11 months now.
The scarcity of supplies has driven prices up. The ISM listed a total of 48 commodities up in price in October, eight of which have seen prices rise every month for more than a year now. The price of aluminum has increased every month for the past 17 months, mirroring the ISM’s index for manufacturing growth, with prices for polypropylene (16 months) and steel (15 months) following just behind.
Two respondents, one in computers and electronics and another in plastics and rubber, said they expect supply shortages to continue into 2022.
Rising Employment and Optimism
The index for manufacturing employment rose at a faster rate than in September but continued to hover near the 50% mark that separates growth from contraction: It rose 1.8 points to 52.0% in October. ISM CEO Timothy Fiore noted that despite the rise, manufacturers are still reporting difficulty hiring enough workers, “due to hiring difficulties and a clear cycle of labor turnover.”
“As workers opt for more attractive job opportunities, panelists’ companies and their suppliers struggle to maintain employment levels,” said Fiore.
Despite the persistent issues with sourcing labor and raw materials, Fiore noted that manufacturing respondents are increasingly optimistic, citing “four positive growth comments for every cautious comment.” That ratio was three-to-one in September.
