April 2021 Manufacturing ISM® Report on Business® Shows Strain of Materials Shortages
The April 2021 Manufacturing ISM® Report On Business® is out, with figures pointing toward a continued stabilization. After shooting up to 64.7% in the previous month, the Manufacturing PMI® fell back to 60.7% in April, indicating tempered expectations as headwinds begin to blow harder. With materials shortages in seemingly every sector, the cost of goods is on the rise. Nevertheless, orders persist. Manufacturing is busy — but can it stay that way?
A breakdown of the push-back
Most individual metrics in the April report show a healthy degree of push back, falling gently from multi-year highs in March. Production backed off 5.6 points, followed by a 3.7-point drop-off in new orders. Employment figures also cooled, falling 4.5 points. Import-export figures teetered slightly in favor of domestic production; imports dropped 4.5 points while exports stayed relatively even.
A persistent reminder of global supply chain issues, prices kicked up 4 points in April, bringing the series index to 89.6 — a level not seen since June 2008. This figure has analysts worried about inflation, which is already a concern given the growing trade deficit and the inflated housing market.
Materials shortages are driving up prices
While expected, manufacturing’s slight pull-back is almost exclusively driven by rising materials prices. Every major commodity is up in price, and demand is back to pre-pandemic levels in many areas of the world. As economies begin to fully reopen and consumer spending increases, producers are finding themselves with increasing demand and increasingly fewer supplies.
Manufacturers across all industries are seeing the negative effects of this recent increased demand. According to the Institute for Supply Management (ISM), availability of basic manufacturing materials is at an all-time low. As a result, prices are climbing at unsustainable rates — and staying there. This grim prospect is reflected in manufacturer sentiment expressed in the ISM report:
“Steel prices are crazy high. The normal checks on the domestic steel mills are not functioning — imported steel is distorted by the Section 232 tariffs.” (Fabricated Metal Products)
Semiconductors continue to cause chaos
Among the most sought-after materials currently experiencing shortages are semiconductors. A global shortage of significant proportion continues to stall almost every major tech-driven industry, including automotive. Vehicle manufacturers continue to take a major hit due to the shortage of semiconductors.
“Continued strong sales; however, we have had to trim some production due to the global chip shortage. Hasn’t affected inventories greatly yet, but a continued decrease will begin to reduce available inventories if we don’t recover chip supply shortly.” (Transportation Equipment)
Automakers aren’t the only ones suffering. Everyone from consumer electronics producers to component manufacturers faces a rising cost of doing business as semiconductor shortages persist. As supply chains continue to suffer, producers begin to ponder passing on these increased costs to consumers. Prices are on the rise — another catalyst for impending inflation.
Demand is strong — Can supply keep up?
Manufacturing continues to surge as the end of the pandemic looms, but its rippling impact on supply chains could stunt growth in the near-term as companies rush to re-orchestrate material sourcing. With high costs and continued shortages, it’s only a matter of time before manufacturing needs to make a choice: turn away work or raise prices. Neither outcome is a pleasant one without a solution to supply chain woes.
