“Inflation is out of control”
Activity in the U.S. manufacturing sector slowed for a second straight month in April, as industrial companies grappled with intensifying supply chain hurdles and high prices, according to the Institute for Supply Management’s April survey of supply chain executives.
The ISM reports its index of manufacturing activity eased 1.7% in April to a reading of 55.4%.
Despite the slowdown, manufacturing is still expanding rapidly in the United States, with any reading over 50 indicative of expansion. April marks the sector’s 23rd month of growth.
In April, the ISM’s New Orders Index, which fell nearly 8% in March, equalized in April, easing back 0.3% to a reading of 53.8%. Similarly, the Production Index, which fell 4% in March, declined just 0.9% in April to 53.6%.
Backlogs improved slightly, registering 56%--4% lower than in March, while employment dipped to 50.9%, a 5.4% decline from March, as suppliers reported a higher rate of quits.
Timothy Fiore, the Chairman of the ISM notes that the U.S. manufacturing sector remains in a “demand driven, supply chain-constrained environment.”
Meanwhile, prices paid by manufacturers eased 2.5% after surging 11.5% in March. Despite the decrease, the prices index remains at a record level at 84.6%.
“Overseas partners are experiencing COVID-19 impacts,” continued Fiore, “creating a near-term headwind for the U.S. manufacturing community. Fifteen percent of panelists’ general comments expressed concern about their Asian partners’ ability to deliver reliably in the summer months, up from 5 percent in March.”
Adhesives, paint, aluminum, electrical components, steel products, and rubber-based products remain on the list of commodities up in price. Nickel, copper, caustic soda, and hydraulic components up in price that have recently been added to the list.
Manufacturers remained optimistic in April – though not quite as optimistic as they were in March. The ISM tracked three positive comments for every one negative comment provided by industrial executives. This is down from the six positive comments for every one negative comment registered in March. Manufacturer optimism has continued to fall since the start of 2022.
In March, seventeen of eighteen industries reported growth, strongest in apparel, leather & allied products; machinery; plastics & rubber products; and nonmetallic mineral products.
What Manufacturers Are Saying About Business Conditions
Comments from manufacturers reflected continued concerns about supply chain disruptions and high prices, while new COVID lockdowns in China are creating more supply chain bottlenecks globally.
Said one executive in the chemicals industry, “Tier-2 supplier shutdowns in Shanghai are causing a ripple effect for our suppliers in other parts of China. Long delays at ports, including in the U.S., are still providing supply challenges. Inflation is out of control. Fuel costs, and therefore freight costs, are leading the upward cycle.” That same respondent went on to say that “Despite the issues and poor outlook, business remains brisk.”
Said another in the miscellaneous manufacturing industry, “The shutdowns in China due to a new COVID-19 wave are causing supply concerns for late second quarter and early third quarter.”
Shortages and high prices persist amid a high-demand environment, with one executive in the electrical equipment and components industry, “Business is strong. Backlog continues to grow due to new orders and inconsistent supply chain conditions. Shortages of components are the main factor limiting our production.” While another in the plastics industry noted “Material price increases continue to be passed on (to customers) based on costs of raw materials, logistics and labor to produce products.”
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