Manufacturing Output Approaches Record Levels as Recovery Surges

Manufacturing’s performance after the impact of COVID-19 has surpassed recovery, and now has begun to approach all-time record highs.

Just a year after the Institute for Supply Management’s PMI Index fell below the growth threshold in the wake of the global pandemic, the PMI Index for March 2021 hit 64.7%, more than 50% higher than the April 2020 reading of 41.7% and 3.9 percentage points higher than the February mark of 60.8%. Sharp increases in new orders, production and employment fueled the increase and overwhelmed continuing supply chain and employment issues, as well as the impact of March storms in Southern and Southwestern states (particularly in Texas).

The Index reached its highest level since 1983, when the PMI was at the record level of 69.9% in December and 66.0% in November.

Solving supply and employment issues could help the index eclipse that record, said Timothy R. Fiore, chairman of the ISM’s Manufacturing Business Survey Committee. “Survey Committee Members reported that their companies and suppliers continue to struggle to meet increasing rates of demand due to coronavirus (COVID-19) impacts limiting availability of parts and materials,” Fiore said in a press release.

“Extended lead times, wide-scale shortages of critical basic materials, rising commodities prices and difficulties in transporting products are affecting all segments of the manufacturing economy,” Fiore added. “Worker absenteeism, short-term shutdowns due to part shortages and difficulties in filling open positions continue to be issues that limit manufacturing-growth potential.”

Overall, however, the news continues to improve for the manufacturing sector as it slowly unwinds from the effects of the pandemic. “Manufacturing performed well for the 10th straight month, with demand, consumption and inputs registering strong growth compared to February,” said Fiore. “Labor-market difficulties at panelists’ companies and their suppliers persist. End-user lead times (for refilling customers’ inventories) are extending due to very high demand and output restrictions as supply chains continue to recover from COVID-19 impacts.”

Committee members noted the seasonal impacts that affected their businesses. Among the comments:

“Late-winter storms in unexpected [areas] of the U.S. had our organization exercising business-continuity plans on a much more aggressive scale than anticipated. While the storms slowed our supply chain down, we did what we could to meet orders, even though few were short. We feel that in the coming month, we will be able to make up the misses as well as continue strong deliveries in the next month. As consumer confidence grows and the academia market reopens globally, we do expect orders to increase.” (Computer & Electronic Products)
“Demand remains strong. Significant supply impacts on raw materials due to the Texas freeze. All major raw-material and suppliers on force majeure.” (Chemical Products)
“Business conditions are positive for our industry and company. The constraints are mainly related to parts availability (imports, supply chain congestion). Manpower is also a constraint; hiring new members is a challenge.” (Transportation Equipment)
“Winter Storm Uri has made daily life in supply chain quite a challenge. Everything from plastic substrates to adhesives have been significantly impacted by the production interruptions.” (Food, Beverage & Tobacco Products)
“The spring and summer months look great for the national oil markets.” (Petroleum & Coal Products)
“A lack of qualified machine and fabrication shop talent makes it difficult to keep up with production demands when there is no backup (second string). Qualified new hires are an ongoing challenge. We have had to provide better compensation to keep qualified talent. Raw-material prices are up 50 percent to 60 percent over the last six months, which results in increased prices to our customers and a disincentive to build inventory.” (Fabricated Metal Products)
“Widespread supply chain issues. Suppliers are struggling to manage demand and capacity in the face of chronic logistics and labor issues. No end in sight.” (Machinery)
“Business is even stronger for us this year through the third quarter, and we expect a very healthy growth of our manufacturing sales.” (Electrical Equipment, Appliances & Components)
“Business bottomed out in February; we are expecting steady improvement through the end of the year. Inflation and material availability, along with logistics, are major concerns.” (Furniture & Related Products)
“Tremendous stress on the supply chain since the winter storm in Texas. Chemicals are on allocations or unavailable. Resin is on allocation and unavailable.” (Plastics & Rubber Products)