The Latest Survey Data: Manufacturing Growing, and Facing Supply Constraints

By at 1 April, 2021, 6:49 pm


by Raymond J. Keating-

The latest surveys on manufacturing point to solid growth having occurred in March, but with increasing challenges in terms of the supply chain.

The IHS Markit U.S. Manufacturing PMI report noted that the March PMI hit the second-highest level on record (data going back to May 2007), thanks to strength in new orders. At the same time, it was pointed out that supply shortages restrained production. Supplier lead times were vastly extended, and costs rose “at the quickest rate for a decade.”

Noting that the index increased from 58.6 in February to 59.1 in March, it was explained: “Goods producers registered the fastest upturn in new business for almost seven years in March… While output rose for a ninth successive month, the faster rise in demand did not translate into sharper production growth as output was reportedly constrained by supply shortages and unprecedented extensions to lead times. Although still strong overall, the rate of expansion in output was the slowest since last October.”

The Institute for Supply Management’s Manufacturing PMI for March told much the same story of growth along with supply constraints. Timothy R. Fiore, chairman of the Institute for Supply Management’s Manufacturing Business Survey Committee, was quoted:

“The March Manufacturing PMI registered 64.7 percent, an increase of 3.9 percentage points from the February reading of 60.8 percent. This figure indicates expansion in the overall economy for the 10th month in a row after contraction in April… However, Survey Committee Members reported that their companies and suppliers continue to struggle to meet increasing rates of demand due to coronavirus (COVID-19) impacts limiting availability of parts and materials. Extended lead times, wide-scale shortages of critical basic materials, rising commodities prices and difficulties in transporting products are affecting all segments of the manufacturing economy. Worker absenteeism, short-term shutdowns due to part shortages, and difficulties in filling open positions continue to be issues that limit manufacturing-growth potential.”

ISM noted that 17 of 18 manufacturing industries expanded in March, with one effectively being flat.

Chris Williamson, IHS Markit chief business economist, summed up the optimism/concern balance this way: “With business expectations becoming even more optimistic in March, further strong production growth looks likely in the second quarter, but the big question will be whether rising price pressures also become more entrenched.”

It needs to be understood that the price mechanism is how the market directs resources to where they are needed. That’s what is going on right now as we work to emerge from this pandemic economy. The good news clearly is that significant parts of the economy, including manufacturing, are growing. Barring misguided public policies (a distinct possibility, by the way, in terms of taxes and regulation, for example), prices should adjust as suppliers do.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.


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