Manufacturing growth eased from its breakneck pace in April as supply chain bottlenecks and material shortages increase backlogs and limit production efforts. The Institute for Supply Management’s manufacturing index eased to 60.7 in April from a 38-year high of 64.7 in March. Readings above 50 indicate an expansion, and readings below 50 indicate a contraction in manufacturing activity.
Companies and their suppliers continue to grapple with labor unavailability, material shortages, limited freight capacity and record-long lead times resulting from a sooner-than-expected economic recovery. The demand and supply imbalance has persisted since last summer and continues to restrain the otherwise robust momentum in manufacturing activity. These disruptions and shortages are contributing to rising raw material prices and freight costs.
Purchasing managers who responded to the ISM survey commented that “steel prices are crazy high” (from a respondent in the fabricated metals sector) and “it’s getting much more difficult to supply productions with materials that are made with copper or steel” (from a respondent in the electrical equipment and appliances sector) – underscoring material shortages and rising prices.
The prices paid index rose to 89.6 in April, compared to a reading of 85.6 in March and a reading of 35.3 in April of last year.
While rising prices and supply chain disruptions are transitory and not structural in nature, the transition period will see companies coping with these challenges. Still, the manufacturing surveys indicate overall strength, and as the broader economy reopens and companies rebuild their inventories, this momentum will continue.