June 2021 Manufacturing ISM® Report on Business® Holds Steady in the Face of Turbulence
As we enter the back half of 2021, few could’ve predicted the state of the manufacturing industry in the post-COVID-19 year. Those following the Manufacturing ISM® Report On Business® have watched it trend slowly but surely upward for a full year, with key metrics reaching historic levels. Now, in month 13 of the trend, we see the true strength of industry as manufacturing continues to hold a strong position despite turbulence on multiple fronts.
Prices have never been higher. Employment has begun to contract. Demand remains exceedingly strong, and customer inventories are nearing all-time lows. Yet production is strong. Deliveries continue. Backlogs are falling. Manufacturing is doing amazing things in the face of adversity and demonstrating its eagerness for a new era of domestic dominance.
The numbers at a glance
At 60.6%, the PMI for June showed only a minor decrease from its 61.2% reading in May. Orders fell one point, but production ticked up 2.3% in a sign of continuing strength from the industry. Order backlogs decreased substantially, dropping from 70.6% to 64.5%, and even more encouraging, inventories rose slightly by 0.3%. Manufacturers are beginning to catch up.
Prices continue to remain high, increasing by 4.1% to 92.1%, the highest reading since 1979. Supplier deliveries also backed off in June, dropping from 78.8% to 75.1%. This combination reflects the ongoing supply chain struggles producers still face as the pandemic winds down. Imports shot up 7% in June, signaling strong consumerism.
Demand for everything against constrained supply
According to the Report on Business®, demand for every single raw material has increased across the board. This manifests as higher costs and slower production rates for manufacturers as they struggle to get what they need. Compounding rising costs and scarcity, manufacturers are waiting longer for supplies — the average fulfillment time for materials is now 85 days — and costs are rising even further. As Machinery reports, “Customer demand remains strong. Supply chain issues continue to hamper materials availability and impact production scheduling. Supplier costs continue to rise due to increasing materials, labor and shipping costs.”
Manufacturing persists, with or without workers
The uptick in production in this month’s Report on Business® proves the proverbial show must go on — even as the labor market retracts. Shortage of experienced workers continues to plague the industry. As a result, manufacturers find themselves between a rock and a hard place when it comes to balancing supply and demand with production capabilities. Sentiment from industry executives reflects this struggle as reported in Primary Metals, “We continue to be oversold, based on what we are currently capable of producing. Lack of labor is killing us.”
Turbulent times ahead
The outlook for manufacturing appears to be more of the same — at least in the near-term. Lack of experienced employees and materials shortages across the board continue to slow down production and drive up costs. But while all this appears to spell disaster, hope remains. Demand is up and shows no signs of slowing down, and demand is what drives industry forward.