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New Alarm Bells for Raw Materials Prices

The global seasonally adjusted Manufacturing Purchasing Managers’ Indexes (PMI)–a composite designed to provide a snapshot of operating conditions in the manufacturing economy–showed a general drawback in momentum in March and the first quarter of 2022 brought on by rising inflation, continued Covid-19 surges and Russia’s invasion of Ukraine.

Companies also reported paying significantly more to acquire the raw materials needed to manufacture their goods.

United States

Economic activity in the U.S. manufacturing sector grew in March, with the March Manufacturing PMI registering 57.1 percent, a decrease of 1.5 percent from February that signals slowing growth, according to Institute for Supply Management (ISM). A Manufacturing PMI above 48.7 percent, over a period of time, generally indicates an expansion of the overall economy.

“The U.S. manufacturing sector remains in a demand-driven, supply chain-constrained environment,” Timothy R. Fiore, chair of the ISM Manufacturing Business Survey Committee, said. “In March, progress was made to solve the labor shortage problems at all tiers of the supply chain, which will result in improved factory throughput and supplier deliveries…March brought back increasing rates of price expansion, due primarily to instability in global energy markets.”

Fiore said sentiment from a panel of supply chain executives remained “strongly optimistic regarding demand,” with six positive growth comments for every cautious comment, down from February’s ratio of 12-to-1.

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“Demand expanded, with the New Orders Index remaining in growth territory, supported by weaker growth of new export orders,” he said. “Customers’ Inventories Index remain[ed] at a very low level and Backlog of Orders Index continu[ed] in strong growth territory. Consumption grew during the period, though at a slower rate…The Prices Index increased for the 22nd consecutive month, at a dramatically higher rate compared to February.”

Apparel, leather and allied products, and furniture and related products led the 15 manufacturing industries, including textile mills, that reported growth in March.

The ISM Prices Index rose 11.5 percent in the month to 87.1 percent, indicating raw materials prices increased for the 22nd consecutive month and the biggest month-over-month increase since December 2020.

In March, all 18 industries reported paying increased prices for raw materials, topped by apparel, leather and allied products, and including textile mills.


The introduction of tighter restrictions to contain the spread of the latest wave of Covid-19 in China weighed heavily on manufacturing performance in March, according to the Caixin China General Manufacturing PMI compiled by S&P Global.

Companies registered the steepest decline in output and new business since the initial onset of the pandemic in February 2020, with restrictions around mobility also leading to a steeper deterioration in supplier performance. The report said cost pressures also intensified, with input costs and output charges both rising at the sharpest rates for five months.

The ongoing disruption to business operations, rising costs and recent invasion of Ukraine all weighed on business confidence for the year ahead, which slipped to a three-month low in March.

The PMI for China fell to 48.1 in March from 50.4 in February, signaling a renewed deterioration in business conditions. Though modest overall, the pace of decline was the quickest seen since February 2020, the report noted. The drop in the headline PMI was partly driven by a renewed and solid fall in production at Chinese manufacturing firms in March.

New orders likewise fell at the sharpest rate since February 2020 in March, with companies commenting that domestic and foreign demand had waned, with new export business declining at the fastest pace for 22 months. Overall input costs rose at a sharp and accelerated pace in March, with the rate of inflation hitting a five-month high. Firms sought to pass on additional expenses to clients in the form of higher selling prices.

“Overseas demand fell sharply and global transportation conditions deteriorated,” Dr. Wang Zhe, senior economist at Caixin Insight Group, said. “The gauge for new export orders hit its lowest in 22 months in March. Inflationary pressures increased. The war between Russia and Ukraine and subsequent sanctions…disrupted supply chains and largely pushed up commodity prices…The growth in prices of energy and metals was relatively steep, with the high cost partly passed on to downstream producers.”

Zhe said manufacturers still held on to a positive outlook for their businesses and surveyed entrepreneurs remained confident that authorities would get the domestic epidemic under control.

“Policymakers are facing double challenges…improving the level of precision of epidemic control measures to strike a balance between maintaining the normal order of production and life and guarding safety and health of the people, ensuring fiscal policy and monetary policy are implemented precisely,” Zhe added.


The Eurozone manufacturing sector registered a continued slowdown in growth at the end of the first quarter, with the PMI slumping to a 14-month low. The S&P Global Eurozone Manufacturing PMI fell to 56.5 in March from 58.2 in February and signaled the slowest improvement in operating conditions faced by goods producers since the beginning of 2021.

A rise in geopolitical tensions was noted by manufacturers as a factor weighing on demand and had a noticeable impact on business confidence, which fell to its weakest level since May 2020. The weaker upturn was accompanied by an intensification of supply chain pressures over the month as rising Covid-19 infections in China and Russia’s invasion of Ukraine reportedly led to longer lead times.

At the same time, amid surging commodity, fuel and energy costs, input price inflation re-accelerated in March and hit a four-month high. To offset margin pressures, Eurozone producers raised their prices to the greatest extent in recent memory.

Manufacturing output across the region continued to increase in March, in line with the trend observed since July 2020. However, the rate of growth was the slowest seen over the current expansion period, as firms struggled to obtain raw materials and other necessary components.

Covid-related staff absences, Russia’s invasion of Ukraine and sluggishness within the automotive industry were also reported as drags on growth.

“Just as the fading of the latest pandemic wave was creating a tailwind for the Eurozone manufacturing recovery, with economies re-opening and supply chain bottlenecks easing, the war In Ukraine has created an ominous new headwind,” Chris Williamson, chief business economist at S&P Global, said. “While the boost to demand from the further relaxation of Covid-19 containment measures helped ensure a sustained expansion of manufacturing order books and output in March, rates of growth have cooled markedly amid sanctions, soaring energy costs and new supply constraints linked to the war. Heightened risk aversion among both manufacturers and their customers due to the uncertainty caused by the invasion, combined with an Intensifying cost of living crisis…threatens to pull growth even lower in the coming months, as reflected in the slumping of manufacturers’ growth expectations for the coming year.”


“The surge in COVID-19 cases in Vietnam during March took its toll on the manufacturing sector, pushing output back into contraction territory,” Andrew Harker, economics director at S&P Global, said. “This was primarily due to labor shortages, as so many workers were off with infections that factories were unable to maintain production volumes. While firms will be hoping that infection levels start to ease soon, providing some alleviation on that front, the war in Ukraine provides a further headwind.”

Harker said the most noticeable impact for Vietnamese firms in March was on prices. Input costs increased at the sharpest pace in almost 11 years on the back of higher costs for oil and gas following the outbreak of war.

“This has dashed any hopes that inflationary pressures might be set to ease over the months ahead,” he added.

The Vietnam Manufacturing PMI dropped to 51.7 in March from 54.3 in February. Although still pointing to an overall strengthening of business conditions, the latest improvement was the least marked in the current six-month sequence of growth.

S&P said the severity of the latest wave of the Covid and worries about inflationary pressures acted to dampen expectations for the future. Business confidence dropped to the lowest in six months, but firms remained optimistic that output would rise over the coming year, based on hopes that the pandemic will fade and new orders expand.