WASHINGTON (MaceNews) – The day’s ISM report on manufacturing focused on supply-chain blockages that will continue into the late summer with the White House effort to diagnose the problem lagging.
The Institute for Supply Management’s report showed manufacturing momentum powered up in March, with the index coming in considerably above expectations at 64.7. The new orders index reflected strong demand but supply chain issues, from port congestion to bad weather, cut customer inventories to a record low and pushed orders backlogs to a record high.
The semiconductor shortage has been a high-profile problem, cutting auto production and helping trigger a presidential executive order in late February aimed at finding the bottlenecks. But that production glitch, which will take many months to overcome, has not been a shipping and transportation issue like that which separately has grown to monumental proportions.
ISM’s chair of the manufacturing survey committee who assembles the monthly report, Tim Fiore, explained to reporters how strong demand and low customer inventories compound the problem. When a client gets desperate for delivery a manufacturer whose production is falling behind will have to send half a shipment – half a truckload.
“That puts an extremely strong push on over-the-road freight because you essentially have to double your tractors and double your drivers .” The greater the disruption in the supply chain “the more you need trucks and drivers,” he said.
Chemicals and plastics have been especially hard hit, he said, raising prices. The March report notes, “The Supplier Deliveries Index continued to reflect suppliers’ difficulties in maintaining delivery rates, due to factory labor-safety issues, transportation challenges and increased demand.” Supplier deliveries slowed by 4.6%. The auto industry, already hobbled by shortages of critical semiconductor components, is also being hit by “material shortages,” Fiore said.
One of the monthly report’s respondents, in the transportation industry, commented, “The constraints are mainly related to parts availability – imports, supply chain congestion. Manpower is also a constraint; hiring new members is a challenge.”
Manufacturers would much rather have supply-chain problems than weak demand and to some extent the slower supply tends to force buyers to increase orders, further jamming the supply chain. Yet potential growth is throttled down as the system freezes to some extent.
President Joe Biden raised hopes there would be some kind of government swat-team attack on the supply chain bottlenecks when he signed a sweeping executive order Feb. 24, commanding all government agencies to respond, headed by the new secretary of Commerce Gina Raimondo. In a CNBC interview Wednesday night, she wasn’t even asked about the initiative. A preliminary report reflecting only scattered agency response is not expected until early June and it is not expected to focus on medium-term challenges to the current economy.
Buried in the executive order is a one-year deadline for a comprehensive review of supply-chain constraints, with an emphasis on national security issues, not the day-to-day bottlenecks that will trim some of the growth from 2021.
A one-year horizon, until February 2022, rules out any appreciable federal government attention to the supply logjams this year,
Transportation, shipping delays, ports congestion, some persistent weather disruptions and a system choked by high demand is one part of the problem. Another, the ISM’s Fiore said Thursday, is how the pandemic has increased factory floor absenteeism.
“There’s a lot of turnover … definitely a strong headwind.” How long will the problems continue? “There’s more of a broad feeling now that we’re going to go into the summer, maybe late summer,” Fiore said.
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Contact this reporter: denny@macenews.com.
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