PMI DATA: Manufacturing Expanding but Supply Issues are Growing

By at 3 October, 2021, 9:34 am

by Raymond J. Keating –

Two purchasing managers indexes were released on October 1, which happened to be Manufacturing Day 2021.

Each report – the Institute for Supply Management’s Manufacturing PMI and the IHS Markit U.S. Manufacturing PMI – pointed to continued growth in the sector, along with expanding supply chain challenges.

In the IHS Markit report, it was pointed out that manufacturing experienced “a substantial improvement in operating conditions across the U.S…., albeit the slowest for five months. Despite rising markedly, production was often hampered by severe material and labour shortages, as supply chain disruption worsened.”

Meanwhile in the ISM report, Timothy R. Fiore, chair of the ISM’s Manufacturing Business Survey Committee, said, “The September Manufacturing PMI registered 61.1 percent, an increase of 1.2 percentage points from the August reading of 59.9 percent. This figure indicates expansion in the overall economy for the 16th month in a row after contraction in April 2020.”

Expansion Harmed by Constraints

These observations line up with the growth seen in manufacturing production, according to the latest industrial production report from the Federal Reserve, which has shown expansion since April 2020 (with some dips along the way).

In fact, recent growth in manufacturing production during July and August 2021 meant that the level of output finally exceeded the pre-pandemic February 2020 level.

In the ISM report, however, Fiore explained key challenges:

“Business Survey Committee panelists reported that their companies and suppliers continue to deal with an unprecedented number of hurdles to meet increasing demand. All segments of the manufacturing economy are impacted by record-long raw materials lead times, continued shortages of critical materials, rising commodities prices and difficulties in transporting products. Global pandemic-related issues — worker absenteeism, short-term shutdowns due to parts shortages, difficulties in filling open positions and overseas supply chain problems — continue to limit manufacturing growth potential.”

While the private sector continues to work through these formidable challenges, it is important that policymakers – at the federal, state and local levels – do not impose additional burdens and/or expand programs that diminish or distort incentives for entrepreneurship, investment and work. The big tax hikes proposed as pay-fors within the $3.5 trillion spending package being pushed by President Biden and his allies in Congress would hit manufacturers, and all businesses, at a time when they are sorely tested by these challenges and drained of limited resources to navigate through them.

This is the time for policymakers to be advancing pro-growth policies, rather than the current policies that are focused on higher taxes, expanded and intrusive regulation, and more government spending.

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


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