Employment Struggles Headline May 2022 Manufacturing ISM Report On Business

The manufacturing sector’s ongoing challenges are apparent in the monthly Manufacturing ISM Report On Business. The red flag for the May report is its unemployment metric, which slid into contraction territory. As manufacturers seek qualified employees to keep up with mounting demand, and a growing backlog, they continue to come up short. The expanding gap between demand and available workers could power contraction across the manufacturing sector.

A closer look at the numbers

After rising and falling in a steady ebb and flow since the beginning of the year, as of May, the Manufacturing ISM has been up for two consecutive months. Though it rose less than a point, the momentum is welcome positive news for the manufacturing industry as it wrestles with a challenging second quarter.

New Orders (+1.6 points), Inventories (+4.3 points), and Order Backlogs (+2.7) mark the high points of May’s report. Prices also backed off 2.4 points, giving manufacturers some breathing room. These figures paint a picture of continued demand and the ability of manufacturers to keep their order books filled.

Despite positive momentum, production difficulties continue to bring uncertainty to the industry. Employment fell 1.3 points in May, and Supplier Deliveries were down 1.5 points. Imports also fell into contraction territory, slipping 2.7 points. These are continuous reminders that, despite demand, production capability remains stunted.

Employment as a primary concern

Manufacturing employment levels, already a growing concern in 2022, were a standout negative in the May ISM Report. This critical metric didn’t just drop in May — it fell into contraction territory for the first time since November 2020.

According to the May report, “Employment levels, driven primarily by turnover and a smaller labor pool, remain the top issue affecting further output growth.” Unable to staff to fully meet production demands, many manufacturers have been forced to get creative. According to an executive in the Primary Metals sector, “Business is steady. We consolidated shifts and do maintenance on off hours, which is working well.” Other sectors face similar staffing challenges, which is part of the reason order backlogs continue to trend upward.

To make matters worse, attrition appears to be a long-term issue. As the labor pool continues to shrink and competition for talent increases, manufacturers will find themselves seeking more creative means for meeting demand.

Supply chain problems continue

Manufacturers are also dealing with another familiar catalyst of inadequate production capability: supply chain disruptions. One top concern among ISM interviewees are supply chain setbacks stemming from China’s aggressive COVID-19 lockdowns, which are hitting domestic producers hard.

According to one executive in the Fabricated Metal Products sector, “Shanghai has been shut down since mid-March. All of the (population) is in lockdown, with no production or port activities. Steel remains in allocation. Electronics lead times are more than 12 months.” Despite China’s recent steps to lift the lockdown, supply chain disruption continues.

The manufacturing outlook

Despite two months of positive trend in the Manufacturing ISM Report On Business, manufacturing faces an uncertain future. Demand is strong, but materials and labor — the two essential ingredients for meeting demand — are significantly lacking. There’s a cap on manufacturing capability, and relief does not appear imminent. Manufacturing is bracing for hard times ahead, which could be quantified as early as June’s ISM Report.

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