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Home Goods Lead Uptick in US Manufacturing

Economic activity in the U.S. manufacturing sector grew in August, but still battled logistics and price woes, the nation’s supply executives said in the Manufacturing ISM “Report On Business” from the Institute for Supply Management released Wednesday.

“The August Manufacturing PMI (Purchasing Managers’ Index) registered 59.9 percent, an increase of 0.4 percent point from the July reading of 59.5 percent,” Timothy R. Fiore, chair of the ISM Manufacturing Business Survey Committee, said. “This figure indicates expansion in the overall economy for the 15th month in a row…Business Survey Committee panelists reported that their companies and suppliers continue to struggle at unprecedented levels to meet increasing demand. All segments of the manufacturing economy are impacted by record-long raw-materials lead times, continued shortages of critical basic materials, rising commodities prices and difficulties in transporting products.”

Fiore noted that the past relationship between the Manufacturing PMI and the overall economy indicates that the Manufacturing PMI for August corresponds to a 4.8 percent increase in real gross domestic product (GDP) on an annualized basis.

He said new surges of Covid-19 are adding to pandemic-related issues–worker absenteeism, short-term shutdowns due to parts shortages, difficulties in filling open positions and overseas supply chain problems–that continue to limit manufacturing-growth potential. However, optimistic panel sentiment remained strong. In addition, disruptions from Covid, primarily in Southeast Asia, are having dramatic impacts on many industry sectors.

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Ports congestion in China continues to be a headwind as transportation networks remain stressed,” Fiore said. “Demand remains at strong levels, despite increased prices for nearly everything.”

The 15 manufacturing industries reporting growth in August were led by furniture and related products, while textile mills were one of two sectors reporting a decrease in August compared to July.

The ISM New Orders Index came in at 66.7 percent in August, up 1.8 percent from July, and the 15th consecutive month of growth. A New Orders Index above 52.8 percent is generally consistent with an increase in the Census Bureau’s series on manufacturing orders.

Of the 18 manufacturing industries, the 14 that reported growth in new orders in August were led by furniture and related products.

The Production Index registered 60 percent in August, 1.6 percent higher than the July reading of 58.4 percent, indicating growth for the 15th consecutive month. An index above 52.1 percent, over time, is generally consistent with an increase in the Federal Reserve Board’s Industrial Production figures.

“Raw materials continued to be a constraint to production growth, but less so compared to July, as raw-materials inventories reached their highest levels in this cycle,” Fiore said. “Persistent hiring issues continue.”

The 13 industries reporting growth in production during the month were again led by furniture and related products, while  textile mills were among the four sectors reporting a decrease in August compared to July.

ISM’s Employment Index was 49 percent last month, 3.9 percent below July’s reading. An Employment Index above 50.6 percent is consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

“Strong new-order levels, low customers’ inventories and expanding backlogs belied the reduction in employment strength,” Fiore said. “Survey panelists’ companies are still struggling to meet labor-management plans, but despite a contracting index, there were positive signs compared to recent months–an overwhelming majority of panelists indicate their companies are hiring or attempting to hire.

Seven manufacturing industries reported employment growth in August, including furniture and related products. The seven sectors reporting a decrease in employment in August were led by textile mills.

The delivery performance of suppliers to manufacturing organizations was slower in August, as the Supplier Deliveries Index registered 69.5 percent, 3 percent lower than July and the third straight month of slowing expansion. A reading below 50 percent indicates faster deliveries, while a reading above 50 percent indicates slower deliveries.

“Deliveries slowed at a slower rate compared to the previous month, but the index continues to reflect suppliers’ difficulties in meeting customer demand, including ongoing hiring challenges, extended raw-materials lead times at lower tiers and stubbornly high prices, and inconsistent transportation availability,” Fiore said.

The 16 industries that reported slower supplier deliveries in August were topped by apparel, leather and allied products, textile mills, and furniture and related products.

The Inventories Index came in at 54.2 percent in August, 5.3 percent higher than July, returning to expansion territory after a month of contraction.

“In August, supplier delivery rates exceeded production levels, causing inventory levels to increase,” Fiore said. “This is a positive indication that the supply chain is finally making headway…This is the highest level of inventories expansion since November 2018.”

Apparel, leather and allied products reported a decrease in inventories in August, while textile mills and furniture and related products reported no change in inventories in August compared to July.

ISM’s Customers’ Inventories Index registered 30.2 percent in August, 5.2 percent above the 25 percent reported for July, indicating that customers’ inventory levels were considered too low, “a positive for future production growth,” Fiore said.

No industries reported higher customers’ inventories in August. The 15 industries reporting customers’ inventories as too low during August included textile mills, and furniture and related products.

The ISM Prices Index fell 6.3 percent to 79.4 percent in August, indicating raw materials prices increased for the 15th consecutive month, but at slower levels. A Prices Index above 52.7 percent correlates with an increase in the BLS Producer Price Index for Intermediate Materials.

In August, 16 of 18 industries reported paying increased prices for raw materials, led by apparel, leather and allied products.

ISM’s Backlog of Orders Index registered 68.2 percent in August, a 3.2 percent increase from July, indicating order backlogs expanded for the 14th straight month.

The 15 industries reporting growth in order backlogs in August were topped by apparel, leather and allied products; textile mills, and furniture and related products.

ISM’s New Export Orders Index was 56.6 percent in August, up 0.9 percent month to month.

The eight industries reporting growth in new export orders in August was led by furniture and related products, while textile mills and furniture and related products were among seven industries reporting no change in exports.

ISM’s Imports Index registered 54.3 percent in August, an increase of 0.6 percent compared to July.

“Imports expanded for the 14th consecutive month, at a somewhat faster rate compared to July, reflecting continuing challenges with throughput at U.S. ports of entry,” Fiore said. “Overland-transport challenges and container shortages continue to persist across the global supply chain, causing major stability issues with respect to predictable import levels. Imports will continue to be challenged through the end of 2021.”