October 2021 Manufacturing ISM Report On Business Holds Steady at the ‘New Norm’
In a stark contrast to the wild ride of 2020, 2021 has been remarkably consistent for the manufacturing industry. The October 2021 Manufacturing ISM Report On Business represents the pinnacle of normalcy after the height of the COVID-19 pandemic. With an overall manufacturing PMI of 60.8, the report is almost perfectly aligned with the 12-month running average of 60.5.
While the individual metrics of the ISM report have had their ups and downs throughout the year, industry remains staunchly on track for stability — even headed into the traditionally tumultuous winter season.
The October figures in brief
Several important metrics stand out on the October report, signaling both new and ongoing trends worth monitoring as we move toward the end of the year.
After falling for a brief reprieve, prices surged 4.5% in October — pushing them once again to historic heights. In contrast, new orders showed a decline of 6.9% in a significant drop from September’s healthy 66.7%. Imports also fell off — registering 49.1% from a reading of 54.9% in September.
These movers and shakers could indicate diminishing demand, but the report did show growth in imports from certain industries, including chemical products, textile mills, furniture, and fabricated metal products — suggesting demand remains at the right price.
Manufacturing is managing demand well
Over the last 18-24 months, the world saw a dramatic increase in demand for manufactured products. Today, we’re seeing it manifest in supply chain issues, port congestion, and a litany of other headwinds. But according to the ISM report, demand may finally begin to alleviate — which could give manufacturers the reprieve necessary to catch up on production and establish forward-looking strategies.
The holiday season is likely to test manufacturers — both in managing year-end demand and coping with persistent employment challenges. While employment was actually up 1.8% in October, many manufacturers remain severely understaffed. And even with a temporary reprieve, the holiday season could prove stressful for those seeking to keep production and fulfillment aligned with customer expectation.
Manufacturers have managed demand well throughout 2021 despite a host of headwinds. As more producers accept the lingering reality of supply chain delays and materials shortages, they’re pivoting to prepare for a better year in 2022.
Inflation remains a threat
According to October’s PMI report, prices now register at 85.7%. The Fed benchmarks a healthy price growth rate somewhere in the range of 52.7% — an indication of impending inflation. Price instability, scarcity, and demand are the key ingredients keeping the cost of goods sold (COGS) high for many manufacturers and potentially spelling bad news for the economy as a whole.
Inflation pressures continue to build with no sign of slowing down. And while rate hikes are expected in the coming year, they might not be enough to keep inflationary drivers in check. Manufacturers are bracing for more of the same in 2022, and many will find themselves with no choice left but passing increasing costs on to consumers — an act that would indisputably lead to inflation.
The holiday season promises problems
With the holiday season right around the corner, the economy will stress test the stability of the manufacturing PMI. Demand is almost certain to spike again in the new year, and with materials prices remaining high, manufacturers will find themselves scrambling to pivot and avoid headwinds. As one respondent to the ISM report put it, “Business is getting stronger, but the supply chain is getting worse every day.”
