U.S. Manufacturing Data: Some Movement in the Right Direction

By at 1 March, 2022, 2:22 pm

by Raymond J. Keating –

While assorted challenges persist, the latest purchasing managers surveys point to manufacturing at least moving in the right direction in February.

The IHS Markit Manufacturing PMI reported “a stronger improvement in operating conditions midway through the opening quarter of 2022.”

Some of the good news was summed up this way:

“Although only modest overall, output rose at a faster pace amid signs of easing supply chain disruption and the sharpest expansion in new orders since last October. Stronger new sales growth spurred manufacturers to increase staffing numbers and boost stocks of purchases. Pressure on capacity softened as backlogs rose at the slowest pace in a year as material shortages eased.”

As for the Institute for Supply Management’s Manufacturing PMI take, it was noted that there were signs of relief from the omicron variant in February, with the overall PMI index up, including gains in new orders and production. However, as reported, “Inputs — expressed as supplier deliveries, inventories, and imports — continued to constrain production expansion.”

Key Positives

Timothy R. Fiore, chair of the Institute for Supply Management Manufacturing Business Survey Committee, hit on some key positives:

“Manufacturing performed well for the 21st straight month, with demand registering month-over-month growth and consumption softening slightly, though less than forecast. The impact of omicron declined in February as swiftly as it appeared in December, leaving March and April’s manufacturing environment favorable, especially with new orders and backlogs registering strong growth.”

For good measure, Fiore pointed out, “Panel sentiment remained strongly optimistic, with 12 positive growth comments for every cautious comment, up from January’s ratio of 7-to-1.”

Serious Challenges Persist

Still, there are ongoing and new concerns, and they are serious. Chris Williamson, Chief Business Economist at IHS Markit, wasn’t exactly shy in summing up such matters:

“Although the survey’s price gauges covering companies’ costs and selling prices are off the peaks seen last year, they remain very high by historical standards and point to persistent elevated inflation in coming months. With rising oil prices adding further to soaring costs, and the Ukraine crisis likely to add to global supply disruptions, the inflation outlook is an increasing concern. With the survey data collected prior to the escalation of the conflict in Ukraine, the full impact of the situation is yet to appear in the data. Supply chains are likely to be further disrupted, with existing shortages exacerbated by safety stock building, and prices will likely come under further upward pressure. Perhaps most important will be the effect on business optimism and whether the improvement in prospects seen in February will be reversed, which could lead to reduced spending and investment.”

Some Perspective

In terms of a longer run perspective, U.S. manufacturing production grew solidly, though unevenly given various recessions and slowdowns, from at least the early 1920s to 2007. But since the Great Recession, manufacturing has, at best, stagnated.

That’s not inevitable.

Manufacturing overwhelmingly is a small business undertaking – consider that 93.1 percent of U.S. manufacturing employer firms have fewer than 100 workers (2019 latest U.S. Census Bureau data) – so it makes sense for policymakers to roll back tax and regulatory burdens that harm entrepreneurship, investment and manufacturing, and to advance free trade that opens new export opportunities for manufacturers and their workers, and reduces costs of and expands choices for imports, which are inputs to U.S. enterprises, including manufacturers.

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



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