PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

Manufacturing and Services Data for April: Strong Growth, But Costly Government Looms as a Threat

By at 5 May, 2021, 3:03 pm

 

by RAYMOND J. KEATING-

In both the manufacturing and service sectors, the latest reports capturing purchasing managers’ activities and views point to strong growth continuing in April. Indeed, looking ahead, as the pandemic retreats, the expansion of government emerges as the biggest threat to our economy.

The Institute for Supply Management’s Manufacturing PMI registered 60.7 percent. That was down from March’s 64.7 percent, but pointed to the eleventh consecutive month of growth. The ISM manufacturing measure also noted significant challenges in the supply chain, but also a growing optimism.

Timothy R. Fiore, Chair of the Institute for Supply Management Manufacturing Business Survey Committee, said, “The manufacturing economy continued expansion in April. 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. Recent record-long lead times, wide-scale shortages of critical basic materials, rising commodities prices and difficulties in transporting products are continuing to affect 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. Optimistic panel sentiment increased, with 11 positive comments for every cautious comment, compared to an 8-to-1 ratio in March.”

Meanwhile, the IHS Markit U.S. Manufacturing Purchasing Managers’ Index reported “a robust improvement in the health of the U.S. manufacturing sector, and the steepest since data collection began in May 2007.”

The IHS manufacturing measure actually was up in April versus March, and hit the highest mark since the index started in 2007. Supply chain issues also were highlighted as serious challenges, which fed into some moderation in business confidence.

The IHS Markit U.S. Services PMI pointed to an even more robust service sector, highlighting “unprecedented expansion in business activity across the U.S. service sector,” with the “the fastest increase in new business on record.” Service companies increased their workforces “at a sharp pace in April.” Again, though, supply chain issues were noted.

Finally, the Services ISM Report On Business also pointed to growth continuing in April, but not necessarily as robust as the IHS measure indicated. Anthony Nieves, Chair of the Institute for Supply Management Services Business Survey Committee, summed up:

“According to the Services PMI, 17 services industries reported growth. The composite index indicated growth for the 11th consecutive month after a two-month contraction in April and May 2020. There was slowing growth in the services sector in April; however, the rate of expansion is still strong. Respondents’ comments indicate that pent-up demand is continuing. Production-capacity constraints, material shortages, weather and challenges in logistics and human resources continue to affect deliveries, which has resulted in a reduction of inventories.”

Strong Snapback Not Surprising

Even with the discrepancies among these surveys – with the IHS reports coming in stronger than the ISM – strong growth in unmistakable. And considering that the economy is emerging from a pandemic and related shutdowns, a strong snapback in business activity is not surprising. In addition, supply chain constraints also should be expected.

Of course, we should expect market participants to react to price and profit signals and work to alleviate supply chain problems. That process actually was nicely highlighted by Chris Williamson, Chief Business Economist at IHS Markit, who noted that “with confidence in the outlook continuing to run at one of the highest levels seen over the past seven years, buoyed by vaccine roll-outs and stimulus, further investment in production capacity should be seen in coming months, helping alleviate some of the price pressures.”

Will Intrusive Government Undermine the Positivity?

The wildcard in this entire process as we look ahead turns out to be policymaking by elected officials and their appointees. For example, vast increases in government burdens on entrepreneurs, businesses and investors – as being pushed by President Joe Biden and already being inflicted in states like New York – will disincentivize and reduce resources for the engines of our economic recovery and expansion, that is, entrepreneurship and private investment.

These remain troubled and uncertain times, to say the least. The last thing needed is a vast expansion in government that – whether intended or not – will restrain the economy. Our elected officials should be focused on how private sector growth and opportunities can be expanded – such as via tax and regulatory relief, and the expansion of free trade – not on reducing opportunity by expanding the burdensome reach of government through higher taxes and more regulation.

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

 

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