–ISM: Worst of Supply Delays Yet to Come for US Manufacturers
–ISM: Early Signs of Fed Tightening Causing Softer Demand
By Max Sato
(MaceNews) – US manufacturing activity growth picked up slightly in May, but companies continued to face labor shortages and global supply chain constraints, with Covid lockdowns in Chinese port cities expected to cause further delays in shipments, data from the Institute for Supply Management released Wednesday showed.
The US manufacturing sector index compiled by the ISM unexpectedly rose to 56.1 in May after slipping to 55.4 in April from 57.1 in March. It was the first rise in three months. April’s level was the lowest since September and August 2020, when it was also at 55.4. Last time the index was below that level was 53.9 in July 2020. The main index stayed above the breakeven point of 50, indicating that the overall economy expanded for the 24th consecutive month.
“The U.S. manufacturing sector remains in a demand-driven, supply chain-constrained environment,” Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, said in a statement, repeating his recent comments.
“Despite the employment index contracting in May, companies improved their progress on addressing moderate-term labor shortages at all tiers of the supply chain,” he said. “May was a second straight month of slight easing of prices expansion, but instability in global energy markets continues.”
The new orders index rose 1.6 points to 55.1 in May from 53.5 in April. It was also above 53.8 in March but below 61.7 in February. The new export orders index rose 0.2 point to 52.9 in May after falling further to 52.7 in April from 53.2 in March and 57.1 in February.
The employment index fell 1.3 points to 49.6 from 50.9 in April, hitting the lowest level since 48.1 in November 2020 and also recording the first contraction since then. It followed a 3.4-point rise to a one-year high of 56.3 in March.
“Challenges with turnover (quits and retirements) and resulting backfilling continue to plague efforts to adequately staff organizations, but to a slightly lesser extent compared to April,” Fiore said. Later he told reporters, “We just cannot hire enough people.”
The supplier deliveries index fell 1.5 points to 65.7 in May after rising 1.8 points to 67.2 in April and falling 0.7 point to 65.4 in March. The latest figure indicated deliveries slowed at a slower rate, which was supported by a 4.3-point jump in the inventories index to 55.9 in May.
“Overseas partners’ disruptions are beginning to impact U.S. manufacturing, creating a near-term headwind for factory output growth,” Fiore said. “Ten percent of panelists’ general comments expressed difficulty obtaining material from their Asian partners, which will impact reliable deliveries in the summer months.”
US manufacturers are “still very concerned” about the impact of delayed shipments from Asia, Fiore told reporters, adding that the worst of the effects of port congestion and supply delays is yet to come.
The imports index dipped 2.7 points to 48.7 in May from 51.4 in April, showing contraction after six consecutive months of expansion. It reflects the impact of Covid-19 lockdowns in China.
The prices Index increased for the 24th consecutive month but at a slower rate compared to April as it fell 2.4 points to 82.2 in May after easing 2.5 points to 84.6 in April and surging 11.5 points to 87.1 in March from 75.6 percent in February.
There is an “early indication” that tightening by the Federal Reserve is causing “some softening of demand” but demand still high, he said. Orders books are filled but not expanding so much any longer, he explained.
Fiore estimated that about 25% of the manufacturing sector (mostly chemical firms and fabricated metal producers) are feeling signs of softer demand.
Last month he said the first-quarter GDP contraction in the US was caused by a surge in imports and that there was no indication of softening of demand.
“While orders remain strong and backlogs exist, there’s a softening in forecast orders for leading indicator-type customers and business units,” a chemical producer told the ISM.
A fabricated metal products maker noted: “Shanghai has been shut down since mid-March. All of the (population) is in lockdown, with no production or port activities. Steel remains in allocation. Electronics lead times are more than 12 months.”
“The challenge with semiconductors hasn’t softened; the situation is worsening due to Chinese Covid-19 lockdowns,” a transportation equipment maker said.
On the upside, a manufacturer of computer and electronic products said, “Suppliers are seeing a light at the end of the tunnel for restoration of (semiconductor) component supply. Second-quarter and Q3 supply appears to be loosening.”
The production index rose 0.6 point to 54.2 in May after falling 0.9 point to 53.6 in April and dropping to 54.5 in March from 58.5 in February. The backlog orders Index rebounded 2.7 points to 58.7 in May after slumping 4.0 points to 56.0 in April from 60.0 in March.