PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

Manufacturing PMIs Line Up with Other Indicators Noting Supply Constraints

By at 4 January, 2022, 4:20 pm

by Raymond J. Keating –

And so it continues. What? Assorted supply chain issues persisted and constrained manufacturing output in December – though growth and optimism persist.

It was noted in the IHS Markit manufacturing Purchasing Managers’ Index (PMI):

“The rate of output growth picked up slightly to the fastest for three months, but was much slower than those seen earlier in the year. Manufacturers noted further constraints on production due to severe material shortages and input delivery delays. An inability to source key inputs also weighed on new orders, which expanded at the softest rate for a year.”

Cost Pressures Too.  Alongside these challenges stood cost factors, according to the report: “Higher transportation and freight fees, alongside shortages of key items, led to a further marked increase in input costs during December.” While the rise in input costs softened some compared to recent months, the rate remained hot relative to a longer historical view.

The Institute for Supply Management’s manufacturing PMI told a similar story. The topline point was that manufacturing growth continued in December, as noted by Timothy R. Fiore, Chair of the Institute for Supply Management Manufacturing Business Survey Committee:

“The December Manufacturing PMI registered 58.7 percent, a decrease of 2.4 percentage points from the November reading of 61.1 percent. This figure indicates expansion in the overall economy for the 19th month in a row after a contraction in April 2020.”

Fiore added, “The U.S. manufacturing sector remains in a demand-driven, supply chain-constrained environment, with indications of improvements in labor resources and supplier delivery performance. Shortages of critical lowest-tier materials, high commodity prices and difficulties in transporting products continue to plague reliable consumption. Coronavirus pandemic-related global issues — worker absenteeism, short-term shutdowns due to parts shortages, employee turnover and overseas supply chain problems — continue to impact manufacturing.”

Yet, there is Optimism.  Looking ahead, though, optimism remains strong, thankfully. As reported by IHS:

“Finally, output expectations for the year ahead strengthened to the highest since November 2020. Optimism stemmed from hopes of reduced supply disruption and a greater ability to hire suitable workers.” And ISM’s Fiore pointed out that “panel sentiment remains strongly optimistic, with six positive growth comments for every cautious comment, down slightly from November.”

Let’s hope that entrepreneurship, investment and innovation are able to flourish, alleviate assorted constraint, and push business and the economy in the right direction, with optimism spreading for good reason among businesses of all types and sizes.

But as we have noted time and again, policy must support these positive activities – not weigh them down or create uncertainty – in order for optimism and long-term growth to continue.

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

 

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