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IndustryNet Blog

U.S. Manufacturing Activity Steps Back as Supply Chain, Price Pressures Ease

Posted by IndustryNet on Monday, January 10, 2022


Activity in the U.S. manufacturing sector walked back in December, signaling a potential easing of supply chain bottlenecks, according to the Institute of Supply Management’s survey of supply executives released January 4th.

The ISM reports its index of manufacturing activity stepped back 2.4% in December to a reading of 58.7%. This suggests that although manufacturing is still well into expansion territory, some of the metrics that have plagued the sector such as high prices are beginning to equalize.

Demand and output were still strong in December, though slightly more muted compared to previous months. The ISM’s New Orders index eased 1.1% to a level of 61.5. Production fell 2.3% to a still-expansionary reading of 61.5%.

Most significant in this month’s report was the Prices Index, which fell 14.2% to a reading of 68.2%. Additionally, the employment index rose 0.9% to 54.2%, suggesting that conditions in the labor market for manufacturers continues to show signs of improvement.

Although prices are still running high, several commodities came down in price, including aluminum, steel, polyethylene, and polypropylene, and natural gas.

Timothy Fiore, Chair of the ISM committee stated the sector “remains in a demand-driven, supply chain-constrained environment, with indications of improvement in labor resources and supplier delivery performance. Shortages of critical lowest-tier materials, high commodity prices, and difficulties in transporting products continue to plague reliable consumption.” Fiore referred to multiple issues faced by manufacturing companies including “overseas supply chain problems, worker absenteeism, and short-term shutdowns due to parts shortages.”

Optimism among manufacturing executives was strong this month, but not quite as strong as November’s sentiment. The ISM registered 6 positive comments for every one negative, compared to last month’s 10 positive comments for every one negative comment.

In December, fifteen of eighteen industries reported growth, strongest in apparel, leather & allied products; furniture & related products; textile mills, plastic and rubber products, machinery; and non-metallic mineral products.

New Index Measures Global Supply Chain Pressures

As manufacturers continue to wonder “what’s next?” in supply chain disruption, the New York Federal Reserve has developed a new index to measure global supply chain pressures. The new barometer integrates several metrics, including the Baltic Dry Index (cost of raw materials shipping costs), the Harper Index (container shipping rates) the costs of air transportation and freight from the Bureau of Labor Statistics and data from the ISM.

Not surprisingly, the Global Supply Chain Pressure Index shows a huge spike global supply chain pressures during the pandemic, and particularly in 2021. However, the new index also suggests that pressures have peaked and may be beginning to moderate, as reflected both in the ISM metrics and in comments from industrial executives.


What Manufacturers Are Saying About Business Conditions

Some comments from the ISM panel reflected many of the same pain points we’ve seen from industrial executives in 2021, including a tight labor market, shortages of parts and materials, and prices. However, many industries are reporting improvement in supply chain disruptions and overall business conditions.

Said one executive in the chemical industry: “Chemical supply chains are filling very slowly. Still not full, but (my) gut feeling says it’s getting easier to source chemical raw materials.”

Another in the fabricated metals sector reported “Price increases appear to be slowing. Lead times are shrinking slowly, and inventories are growing. I hope we have reached the top of the hill to start down a gentle slope that lets us get back to something that resembles normal.”

While a company in the machinery sector echoed this sentiment: “Costs for steel seem to be coming down some. We have seen a little relief on steel prices, but they are still very high. Overall performance by suppliers has improved. On-time deliveries have improved.”

Business confidence, meanwhile, remains on the upswing. One company in the plastics and rubber industry reported “Very robust order activity. Backlog increased.” But cautioned “Plastic raw material shortages impact orders,” while another in the nonmetallic mineral products sector stated “Construction projects for 2022 and 2023 look very strong for us.”

Tried-and-True Industrial Solutions

As providers of industrial information since 1912, we’ve seen the ups and downs of U.S. manufacturing, providing much-needed industrial information to our customers during the Great Depression, World War II, and beyond. We understand how much our customers rely on our industrial solutions for their everyday operations. At MNI, Our goal is to help your business thrive, so whether you’re looking to advertise your products and services to manufacturers, needing to find new suppliers, or are looking to reach out to decision-makers in the manufacturing world, our industrial solutions are here to support your mission.



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