Tag Archives: global semiconductor shortage

U.S. manufacturing activity rises; shortages linger

By Lucia Mutikani

WASHINGTON(Reuters) – U.S. manufacturing activity unexpectedly picked up in August amid strong order growth, but a measure of factory employment dropped to a nine-month low, likely as workers remained scarce.

The survey from the Institute for Supply Management (ISM) on Wednesday continued to highlight persistent problems securing enough raw materials, a situation worsened by disruptions caused by the latest wave of COVID-19 infections, primarily in Southeast Asia, as well as ports congestion in China.

“A surprising turn of events for manufacturing activity in the U.S., but it doesn’t change the story of supply disruptions and shortages holding back stronger growth,” said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto.

The ISM said its index of national factory activity inched up to 59.9 last month from a reading of 59.5 in July. A reading above 50 indicates expansion in manufacturing, which accounts for 11.9% of the U.S. economy. Economists polled by Reuters had forecast the index falling to 58.6.

Manufacturing is holding up even as spending is rotating back to services from goods because of vaccinations against COVID-19. All of the six largest manufacturing industries, including computer and electronic products, chemical products and transportation equipment reported moderate to strong growth.

Manufacturers of computer and electronic products said while a global semiconductor shortage was impacting supply lines, they had so far “been able to manage it without impacting clients.”

Chemical goods producers said they continued to “see extended lead times due to port delays and sea container tightness.” Transportation equipment makers reported that “strong sales continue, but production is limited due to supply issues with chips.”

The ISM survey’s forward-looking new orders sub-index rebounded to a reading of 66.7 last month after two straight monthly declines. Fourteen out of 18 manufacturing industries, furniture and related products, machinery and electrical equipment, appliances and components reported growth in new orders. Only nonmetallic mineral products reported a drop.

Demand is being driven by businesses desperate to replenish stocks after inventories were drawn down sharply in the first half of the year. Inventory accumulation, which is expected to be the main driver of economic growth for the rest of this year and into 2022, has been frustrated by the supply constraints.

Stocks on Wall Street were trading higher. The dollar slipped against a basket of currencies. U.S. Treasury prices were mixed.

INFLATION ABATING

Scarce inputs have boosted prices for both manufacturers and consumers. But there appears to be light at the end of the tunnel. The ISM measure of delivery performance of suppliers to manufacturing organizations eased further in August, indicating some improvement in the pace of deliveries.

The survey’s measure of prices paid by manufacturers fell to an eight-month low of 79.4 from a reading of 85.7 in July. This measure has dropped from a record 92.1 in June.

It was the latest indication that inflation has probably peaked. Data last week showed the Federal Reserve’s preferred inflation measure recorded its smallest monthly gain in five months in July.

But worker shortages persist, with ISM chair Timothy Fiore highlighting “a clear cycle of labor turnover as workers opt for more attractive job conditions.”

A measure of factory employment contracted last month and fell to its lowest level since November.

Together with the ADP National Employment Report, which showed on Wednesday that private payrolls increased by 374,000 jobs last month after rising 326,000 in July, the ISM factory index poses a downside risk to job growth in August. Economists had forecast the ADP report would show private payrolls increased by 613,000 jobs.

The ADP report is jointly developed with Moody’s Analytics and was published ahead of the Labor Department’s more comprehensive and closely watched employment report for August on Friday. But it has a dismal record predicting the private payrolls count in the department’s Bureau of Labor Statistics (BLS) employment report because of methodology differences.

According to a Reuters survey of economists, nonfarm payrolls likely increased by 728,000 jobs last month after rising 943,000 in July.

“ADP is far from consistent in predicting changes in the BLS payrolls data,” said Rubeela Farooqi, chief U.S. economist at High Frequency economics in White Plains, New York. “Overall, job growth has strengthened in recent months, even as companies continue to report labor supply shortages.”

The pandemic has upended the labor market dynamics, creating worker shortages even as 8.7 million people are officially unemployed. The were a record 10.1 million job openings at the end of June. Lack of affordable child care, fears of contracting the coronavirus, generous unemployment benefits funded by the federal government as well as pandemic-related retirements and career changes have been blamed for the disconnect.

The labor shortage is expected to ease starting in September. The government-funded unemployment benefits lapse on Sept. 6 and schools are reopening for in-person learning.

But the resurgence in new COVID-19 cases, driven by the Delta variant of the coronavirus, could cause reluctance among some people to return to the labor force.

The labor shortages led to a building up of the backlog of uncompleted work at factories in August.

(Reporting By Lucia Mutikani; Editing by Chizu Nomiyama)

U.S. manufacturing growth cooling; bottlenecks starting to abate

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. manufacturing activity grew at a slower pace in July for the second straight month as raw material shortages persisted, though there are signs of some easing in supply-chain bottlenecks.

The survey from the Institute for Supply Management (ISM) on Monday showed a measure of prices paid by manufactures fell by the most in 16 months, while the supplier deliveries index retreated further from a 47-year high touched in May.

Timothy Fiore, chair of ISM’s manufacturing business survey committee, noted that “supply and demand dynamics appear to be moving closer to equilibrium for the first time in many months.” Part of that could be because spending is rotating back to services from goods.

“Manufacturing is slowing from unsustainable boom to sustainable strength,” said Chris Low, chief economist at FHN Financial in New York.

“Moderation in supplier deliveries and prices paid indicate bottlenecks are alleviating, but both remain high enough to indicate supply-side problems persist. Still, from a markets and policy perspective, progress is important.”

The ISM’s index of national factory activity fell to 59.5 last month, the lowest reading since January, from 60.6 in June. A reading above 50 indicates expansion in manufacturing, which accounts for 11.9% of the U.S. economy. Economists polled by Reuters had forecast the index would be little changed at 60.9.

Seventeen out of 18 manufacturing industries reported growth in July, including machinery as well as computer and electronic products. Only textile mills reported a decline.

The ISM survey’s measure of prices paid by manufacturers fell to a reading of 85.7 last month from a record 92.1 in June, reflecting an easing in commodity prices. The drop – the largest pullback in the index since March 2020 – supports Federal Reserve Chair Jerome Powell’s contention that inflation will moderate as supply constraints abate.

The survey’s measure of supplier deliveries fell to 72.5 from a reading of 75.1 in June. The index vaulted to 78.8 in May, which was the highest reading since April 1974. A reading above 50 indicates slower deliveries.

Demand shifted to goods from services during the COVID-19 pandemic as millions of Americans were cooped up at home, straining the supply chain. Roughly half of the population has been fully vaccinated against the coronavirus, allowing people to travel, frequent restaurants, visit casinos and attend sporting events among services-related activities that were curbed early in the pandemic.

Government data last week showed spending on services accelerated sharply in the second quarter, helping to lift the level of gross domestic product above its peak in the fourth quarter of 2019.

U.S. stocks were trading higher, with the S&P 500 index near a record high as the U.S. Congress pushed ahead with a $1 trillion infrastructure bill.

The dollar fell against a basket of currencies. U.S. Treasury prices rose.

LEAN INVENTORIES

Still, anecdotes in the ISM survey suggested the supply chain was still a long way from normalizing. Machinery manufacturers said they are “having to place orders months ahead of time just to get a place in line.”

In the computer and electronics industry, manufacturers reported that “purchases continue to have long lead times due to shortages of raw materials.”

The scarcity of inputs has been well documented in the automobile industry, where a global semiconductor shortage has forced some car makers to idle assembly plants to manage their chips supply.

The ISM survey’s forward-looking new orders sub-index fell for a second straight month. But with inventories at factories very lean and business warehouses almost empty, the moderation in new orders growth is likely to reverse or remain minimal.

Businesses depleted inventories at a rapid clip in the second quarter. Stocks at retailers are well below normal levels. Economists at Goldman Sachs expect retail and auto inventories will return to normal levels in mid-2022.

Factories also hired more workers in July. A measure of factory employment rebounded after contracting modestly in June for the first time since November, though manufacturers continued to complain about the scarcity of workers.

Still, the rebound bodes well for July’s employment report, due to be released on Friday. According to a Reuters survey of economists, nonfarm payrolls likely increased by 880,000 jobs last month after rising by 850,000 in June.

The economy is facing a shortage of workers, with a record 9.2 million job openings. About 9.5 million people are officially unemployed.

Lack of affordable child care and fears of contracting the coronavirus have been blamed for keeping workers, mostly women, at home. There have also been pandemic-related retirements and career changes. Republicans and business groups have blamed enhanced unemployment benefits, including a $300 weekly payment from the federal government, for the labor crunch.

While more than 20 states led by Republican governors have ended these federal benefits before they were scheduled to run out in early September, there has been little evidence that the terminations boosted hiring.

The labor shortage is expected to ease in the fall when schools reopen for in-person learning, but a resurgence in new COVID-19 cases, driven by the Delta variant of the coronavirus, could make some people reluctant to return to the labor force.

(Reporting by Lucia Mutikani; Editing by Dan Burns, Nick Zieminski and Paul Simao)

Ford redesigning parts to use more accessible chips, weighing direct deals with chip foundries

By Ben Klayman

DETROIT (Reuters) -Ford Motor Co, in response to the global semiconductor shortage, is redesigning automotive components to use more accessible chips, the No. 2 U.S. automaker’s chief executive said on Thursday.

Jim Farley, speaking at Ford’s online annual shareholder meeting, also said the company is weighing other strategies for the future, including building a buffer supply of chips and signing supply deals directly with the foundries that make the wafers used in semiconductors.

Automakers typically get their chips through their largest suppliers, not dealing directly with chip makers and the foundries that make the wafers used to assemble the semiconductors.

The chip shortage has caused automakers globally to curtail production. Last month, Ford said the issue would cost it $2.5 billion this year and halve its vehicle production in the second quarter, when the shortage will be at its worst. The shortage has forced Ford at times to idle production of its highly profitable F-150 pickup trucks.

Farley said on Thursday that about 60% of the chips used in Ford’s vehicles are 55-nanometer or larger, what he called “mature nodes.” He said supply of those chips was constrained.

Longer-term changes about how Ford approaches chips are being considered, he said.

“Not only are we redesigning a lot of our components to work with chips that are more accessible … but we think we need to look at buffer stocks, actual direct contracts with some of the foundries,” Farley said. “We think that’s going to be a really critical approach to our supply chain as we get more electronic components.”

Ford Executive Chairman Bill Ford also said on Thursday the automaker will look to reinstate the company’s dividend “as soon as possible.”

Ford’s dividend was suspended in March 2020 after the COVID-19 coronavirus pandemic hit in a move to conserve cash. That saved the company $2.4 billion at an annual rate.

Ford shares were up 3% in morning trading.

(Reporting by Ben Klayman in Detroit;Editing by Elaine Hardcastle)