Manufacturing: Solid Growth But Challenges Stunt Healthy Recovery  

By at 1 July, 2021, 11:49 am


Manufacturing is registering solid growth, but at the same time continuing to be challenged by supply chain issues and rising input prices, according to two new surveys.

The IHS Markit U.S. Manufacturing PMI for June reported the “fastest improvement in the health of the U.S. manufacturing sector on record.” Client demand and manufacturing confidence registered as strong. At the same time, however, supply chain disruptions worsened, with vendor performance deteriorating, and input costs registering “the largest jump on record” dating back to May 2007. Labor shortages played a role in supply chain problems.

Chris Williamson, chief business economist at IHS Markit, was quoted: “Supplier delivery times lengthened to the greatest extent yet recorded as suppliers struggled to keep pace with demand and transport delays hindered the availability of inputs. Factories were increasingly prepared, or forced, to pay more to secure sufficient supplies of key raw materials, resulting in the largest jump in costs yet recorded.”

These phenomena were similar to what was reported by Institute for Supply Management Manufacturing PMI for June. Timothy R. Fiore, chairman of the Institute for Supply Management Manufacturing Business Survey Committee, explained: “Business Survey Committee panelists reported that their companies and suppliers continue to struggle to meet increasing levels of demand. Record-long raw-material 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 parts shortages, and difficulties in filling open positions continue to be issues that limit manufacturing-growth potential. Optimistic panel sentiment remained strong, with 16 positive comments for every cautious comment.”

So, these reports offer encouraging news, tempered by serious challenges.

Manufacturers – who overwhelmingly are smaller businesses (for example, with 93 percent of manufacturing employer firms having fewer that 100 employees) – face supply chain issues and labor shortages as the entire economy works to get back on track, including getting people back into the labor force, and confronting the issue of millions of small businesses being closed, either temporarily or permanently. (See SBE Council’s brief.)

Indeed, in all of the analysis going on about getting the economy back to some normalcy and growth, it seems clear to me that the fallout from so many small enterprises being closed largely is being neglected.

In turn, that speaks to the need for policymakers at the federal, state and local levels to incentivize entrepreneurship and investment via substantive tax and regulatory relief.

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


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