Manufacturing Overlooks Parts, Labor Issues to Continue Growth

Undeterred by shortages of labor and semiconductors, the manufacturing sector continued to steam ahead in August. The manufacturing PMI Index produced by the Institute for Supply Management (ISM) rose slightly in August to 59.9%

Offsetting a contraction in the labor index, the new orders, production and price indexes all remained at high levels in August. That drove the PMI to a 0.4 percentage point increase from July’s 59.5% reading. The PMI remains well above the 50% growth threshold and stayed above the growth level for the 15^th straight month.

“Business Survey Committee panelists reported that their companies and suppliers continue to struggle at unprecedented levels to meet increasing demand,” said Timothy R. Fiore, chairman of ISM’s Manufacturing Business Survey Committee. “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.

"The 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,” he continued.

There remains optimism, as Fiore noted the growth in several underlying indexes. The labor issue is an especially thorny problem, as that index fell below the growth level in August. “Manufacturing performed well for the 15th straight month, with demand, consumption and inputs registering month-over-month growth, in spite of unprecedented obstacles, Fiore said in a press release. “Panelists’ companies and their supply chains continue to struggle to respond to strong demand due to difficulties in hiring and a clear cycle of labor turnover as workers opt for more attractive job conditions.

“Disruptions from COVID-19, primarily in Southeast Asia, are having dramatic impacts on many industry sectors,” he added. “Ports congestion in China continues to be a headwind as transportation networks remain stressed. Demand remains at strong levels, despite increased prices for nearly everything,”

Those issues were reflected in comments from committee members. Among their views:

“The chip shortage is impacting supply lines. So far, we’ve been able to manage it without impacting clients." (Computer & Electronic Products)
“Some factories have been impacted by COVID-19 cases. Malaysian government says factories can operate at only 60% of capacity.” (Computer & Electronic Products)
“We continue to see extended lead times due to port delays and sea container tightness. Manufacturing capacities are impacted by a lack of workers reducing output. Several chemical facilities have experienced fires, explosions and spills, further challenging suppliers’ ability to deliver on time and in full.” (Chemical Products)
“Strong sales continue, but production is limited due to supply issues with chips.” (Transportation Equipment)
“Supply chain functions have been relentlessly challenging. All things from freight (both over the road and ocean), already constrained labor forces are further exacerbated by COVID-19 absenteeism. Also, high prices everywhere are wearing our employee base down.” (Food, Beverage & Tobacco Products)
“Oil prices have remained higher than planned and is helping to secure capital funds and project sanctions for 2021-22 projects.” (Petroleum & Coal Products)
“Bookings/sales continue to be strong. Persistent supply issues—including availability of materials, freight/logistics/containers, and allocation of key commodities—continue to hamper production ramp to meet demand. Also struggling with lack of labor in several factories. Commodities are still inflationary, but price increases have leveled.” (Furniture & Related Products)
“Business is strong. Part shortages are our largest business constraint. We cannot fulfill orders to customers in reasonable lead times. Now booking out into 2022, and it will get worse as we hit our cyclical high demand in the fourth quarter.” (Electrical Equipment, Appliances & Components)
“Business is going strong, but raw material prices still under increasing price pressure. Labor is still an issue.” (Plastics & Rubber Products)
“Continue to be unable to hire hourly personnel or machine operators due to few applicants. Steel and aluminum remain in short supply. New business continues to grow and come in. Unable to handle influx of orders without staff, both hourly and salaried.” (Fabricated Metal Products)

“Customer order backlog continues to climb because we are unable to raise production rates due to supplier parts and manpower challenges. Continue to see price increases with key commodities, and logistics is an ongoing challenge that has no end in sight.” (Machinery)

This article appeared in Machine Design.