February Manufacturing Gains Despite Global Turbulence
February was a tumultuous month for several reasons, chief among them Russia’s invasion of Ukraine. But even among open warfare, a severe semiconductor shortage, labor concerns, and general economic uncertainty, manufacturing continues to weather the turmoil. The February 2022 Manufacturing ISM® Report On Business® shows an industry still bracing for turbulence, despite positive performance.
Here’s a closer look at the figures and some of the biggest contributors to the performance of the domestic manufacturing economy.
Breaking down manufacturing figures
According to the February report, the manufacturing economy expanded for the 21st month in a row with a total PMI of 58.6%, up one point from January.
Beginning with the positive news, the New Orders Index rose 3.8 points followed by the Production Index, which rose to 58.5%. Supplier deliveries also ticked up 1.5 points, while the Prices Index fell half a point. Surprisingly, new exports ticked up 3.4 percentage points.
On the flipside, several figures in the report seem to manifest industry executives’ fears regarding global turbulence. The Backlog of Orders Index increased by a substantial 8.6 points, indicating strong, enduring demand as production capability lags. The report also showed a moderate drop in employment of 1.6 points, tapering the positive upward trend of the last six months.
Despite mixed figures, outlook remains positive in the month ahead, according to Timothy R. Fiore, CPSM, CPM, Chair of the Institute for Supply Management Manufacturing Business Survey Committee. “The U.S. manufacturing sector remains in a demand-driven, supply chain-constrained environment. The COVID-19 omicron variant remained an impact in February; however, there were signs of relief, with recovery expected in March,” he said.
The impact of the Russia-Ukraine War
Already facing turbulence, the manufacturing economy will confront even bigger challenges in the coming months due to the war in Eastern Europe.
Both Russia and Ukraine are major suppliers of metals, raw materials, machinery, and chemical products. Exports are approaching a standstill, and the current decline in Russian and Ukrainian currency leads experts to believe both countries will soon charge more for critical supplies, including in-demand neon gas and palladium.
“The U.S. chip industry heavily relies on Ukrainian-sourced neon and Russia also exports a number of elements critical to the manufacturing of semiconductors, jet engines, automobiles and medicine,” said Per Hong, a senior partner at consulting firm Kearney.
Semiconductor shortages loom large
Speaking of semiconductors, the continued shortage of these critical components is going to get worse before it gets better. Automotive manufacturers will continue to feel the effects of the ongoing global semiconductor shortage. Even large producers like Ford plan to cut production of certain vehicles in response.
Despite hopes for gradual supply chain recovery in 2022, plans to cut vehicle production show even leading companies struggling to overcome shortages. Now, problems are expected to linger into 2023 or longer, depending on the duration of the Russia-Ukraine War.
Manufacturing demonstrates stability
While chaos upends everything around it, the manufacturing sector is showing exceptional stability in the first part of 2022. And while war and other contributing factors are sure to have an ongoing impact in the coming months, manufacturing executives are already taking steps to safeguard their companies and the industry — making it increasingly evident that when the going gets tough, the tough get going.