Tag Archives: U.S. manufacturing

U.S. manufacturing sector picks up in May; work backlogs rising

WASHINGTON (Reuters) – U.S. manufacturing activity picked up in May as pent-up demand amid a reopening economy boosted orders, but unfinished work piled up because of shortages of raw materials and labor.

The Institute for Supply Management (ISM) said on Tuesday its index of national factory activity increased to a reading of 61.2 last month from 60.7 in April.

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 rising to 60.9 in May.

A shift in demand to goods from services as the COVID-19 pandemic kept Americans at home, strained supply chains, with the virus also disrupting labor at manufacturers and their suppliers, leading to raw material shortages across industries.

More than half of adults in the United States are now fully vaccinated against COVID-19, allowing authorities to lift pandemic-related restrictions on businesses. That is whipping up demand across the economy, as is massive fiscal stimulus. There is no sign the supply bottlenecks are easing, even as demand is reverting back to services.

The survey’s forward-looking new orders sub-index jumped to 67.0 from a reading of 64.3 in April. Inventories at factories are barely growing and business warehouses are almost bare.

But production is being constrained by worker shortages. A measure of factory employment dropped to a six-month low in May. Labor is scarce despite nearly 10 million Americans being officially unemployed.

Generous unemployment benefits funded by the government, problems with child care and fears of contracting the virus, even with vaccines widely accessible, as well as pandemic-related retirements have been blamed for keeping workers home.

Lack of workers and shortages of raw materials such as semiconductors used in the production of motor vehicles and electronic goods led to a further increase in backlogs of uncompleted work.

The shortages are also keeping input prices elevated. The ISM survey’s measure of prices paid by manufacturers hovered near levels last seen in July 2008, when the economy was in the throes of the Great Recession.

The higher prices are fanning inflation pressures. The government reported on Friday that a measure of underlying inflation tracked by the Federal Reserve for its 2% target accelerated 3.1% on a year-on-year basis in April, the biggest increase since July 1992.

Most economists and Fed Chair Jerome Powell maintain that higher inflation will be transitory.

The slowdown in hiring at factories last month could temper expectations for an acceleration in job growth in May after nonfarm payrolls increased by only 266,000 in April.

According to an early Reuters survey of economists, payrolls likely increased by 700,000 jobs in May. The government is due to publish May’s employment report on Friday.

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama)

U.S. manufacturing sector slows in April amid supply challenges

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. manufacturing activity grew at a slower pace in April, likely constrained by shortages of inputs amid pent-up demand unleashed by rising vaccinations and massive fiscal stimulus.

The Institute for Supply Management (ISM) said on Monday its index of national factory activity fell to a reading of 60.7 last month after surging to 64.7 in March, which was the highest level since December 1983.

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 edging up to 65 in April.

The White House’s massive $1.9 trillion pandemic relief package and the expansion of the COVID-19 vaccination program to all adult Americans has led to a boom in demand. But the pent-up demand is pushing against supply constraints as the pandemic, now in its second year, has disrupted labor supply, leading to shortages that are boosting prices of inputs.

That has been most evident in the automobile industry, where a global semiconductor chip shortage has forced cuts in production. Ford Motor Co said last week the scarcity of chips slashed production in half in its second quarter.

Technology companies are also feeling the heat. Apple warned last week that the chip shortage could dent iPads and Mac sales by several billion dollars.

Demand for goods like motor vehicles and electronics has surged during the pandemic as Americans shunned public transportation and millions worked from home and took classes remotely. Robust consumer spending helped to lift gross domestic product growth at a 6.4% annualized rate in the first quarter.

Most economists expect double-digit GDP growth this quarter, which would position the economy to achieve growth of at least 7%, which would be the fastest since 1984. The economy contracted 3.5% in 2020, its worst performance in 74 years.

The ISM survey’s measure of prices paid by manufacturers rose last month to the highest reading since July 2008.

The survey’s forward-looking new orders sub-index dropped to 64.3 after racing to 68.0 in March, which was the highest reading since January 2004.

Backlogs of uncompleted work increased last month as did export orders. Manufacturers started drawing down on inventories last month to meet demand. Business warehouses are almost bare, which should keep manufacturers busy and scrambling for resources for a while.

The survey’s manufacturing employment gauge fell to 55.1 after shooting up to 59.6 in March, which was the highest reading since February 2018. The index was well below the 61.5 forecast in a poll of economists, with the slowdown in hiring probably due to a scarcity of workers. Companies across many industries are struggling to find workers, even as employment is 8.4 million jobs below its peak in February 2020.

Federal Reserve Chair Jerome Powell last week acknowledged the worker shortage saying “one big factor would be schools aren’t open yet, so there’s still people who are at home taking care of their children, and would like to be back in the workforce, but can’t be yet.”

The worker shortage could hurt expectations for another month of blockbuster job growth in April. According to an early Reuters survey of economists, nonfarm payrolls likely increased by 950,000 jobs last month after rising by 916,000 in March.

The government is due to publish April’s employment report on Friday.

(Reporting By Lucia Mutikani; Editing by Chizu Nomiyama)

U.S. factory activity slows as COVID-19 infections accelerate

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. manufacturing activity slowed in November, with new orders retreating from their highest level in nearly 17 years, as a resurgence in COVID-19 cases across the nation kept workers at home and factories temporarily shut down to sanitize facilities.

The Institute for Supply Management (ISM) on Tuesday warned that absenteeism at factories and their suppliers as well as difficulties in returning and hiring workers would continue to “dampen” manufacturing until the coronavirus crisis ended.

The softening in factory activity supports expectations for a sharp deceleration in economic growth in the fourth quarter.

“The feared economic slowdown is starting, but it is pretty slow off the blocks,” said Joel Naroff, chief economist at Naroff Economics in Holland, Pennsylvania.

The ISM’s index of national factory activity dropped to a reading of 57.5 last month from 59.3 in October, which had been the highest since November 2018. A reading above 50 indicates expansion in manufacturing, which accounts for 11.3% of the U.S. economy.

Economists polled by Reuters had forecast the index would slip to 58 in November. Sixteen manufacturing industries, including wood products, machinery and transportation equipment, reported growth last month. Petroleum and coal products, as well as printing and related support activities industries, contracted.

The United States is in the grip of a fresh wave of COVID-19 infections, with more than 4 million new cases and over 35,000 coronavirus-related deaths reported in November, according to a Reuters tally of official data. The virus is likely to disrupt production at factories. Manufacturing output is still about 5% below its pre-pandemic level, according to the Federal Reserve.

Coronavirus infections are exploding at a time when more than $3 trillion in government COVID-19 relief has run out. The fiscal stimulus helped millions of unemployed Americans cover daily expenses and companies keep workers on payrolls, leading to record economic growth in the third quarter.

Slowing manufacturing activity followed on the heels of data last week showing consumer spending cooling in October.

The economy grew at a historic 33.1% annualized rate in the third quarter after contracting at a 31.4% rate in the April-June period, the deepest since the government started keeping records in 1947. Growth estimates for the fourth quarter are mostly below a 5% rate.

A second report from the Commerce Department on Tuesday showed a solid increase in construction spending in October, but outlays in September actually declined instead of rising modestly as was previously estimated.

Stocks on Wall Street were trading higher, with the S&P 500 index and the Nasdaq hitting record highs on hopes that a COVID-19 vaccine would be available soon. The dollar fell against a basket of currencies. U.S. Treasury prices were lower.

MIXED VIEWS

“Rising COVID-19 cases in the U.S and the absence of additional fiscal stimulus could weigh on factory conditions over the next couple of months,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania.

Manufacturers last month offered mixed assessments of business conditions. Transportation equipment makers said the flare-up in COVID-19 cases was straining suppliers, with labor the main issue, impacting production.

In the food industry, factories were “sending employees home for 14 days to quarantine,” and “had to shut down production lines due to lack of staffing.” But fabricated metal producers reported strong business and they expected demand to continue growing in 2021. Machinery manufacturers were also upbeat, though they said the coronavirus remained a concern.

ISM’s forward-looking new orders sub-index fell to a reading of 65.1 in November from 67.9 in October, which was the highest reading since January 2004. Manufacturing employment contracted after expanding in October for the first time since July 2019.

ISM’s manufacturing employment gauge dropped to a reading of 48.4 from 53.2 in October. That likely reflects the absenteeism due to the coronavirus as well as layoffs as demand softens. It fits in with economists’ expectations that job growth slowed further in November. Manufacturing accounts for more than 10% of private payroll employment.

“Today’s news of layoffs in the sector, either planned or unplanned, is a worrisome sign that shows there is not a clear path to winning here for the economic outlook as 2021 approaches,” Chris Rupkey, chief economist at MUFG in New York.

About 12.1 million of the 22.2 million jobs lost in March and April have been recovered. The government is scheduled to publish November’s employment report on Friday.

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