Where supply chains are at the moment

Manufacturing and supply chains have endured during the COVID-19 pandemic

By Kevin Parker December 13, 2020

In the current COVID-baked environment, for manufacturing, it often seems things are going rather well, relatively speaking. But perhaps you’d like to know for sure that we’re all not standing on a precipice.

The Institute for Supply Management’s PMI report and survey for manufacturing is considered one of the sector’s most reliable indicators of anticipated economic activity. Therefore, the recently released November report is of special interest.

Economic activity in the manufacturing sector did grow in November, with the overall economy notching a seventh consecutive month of growth, said the nation’s supply executives in the latest Manufacturing ISM Report on Business. What follows are some highlights.

The November Manufacturing PMI registered 57.5%, down 1.8 percentage points from the October reading of 59.3%.

“The manufacturing economy continued its recovery in November,” said Timothy R. Fiore, chair of the ISM manufacturing survey committee. “Survey Committee members reported that their companies and suppliers continue to operate in reconfigured factories, but absenteeism, short-term shutdowns to sanitize facilities and difficulties in returning and hiring workers are causing strains that will likely limit future manufacturing growth potential. Panel sentiment, however, is optimistic (2.5 positive comments for every cautious comment), an improvement compared to October.”

Demand expanded, with 1) the new orders index growing at strong levels, supported by the new export orders index expanding strongly, 2) the customers’ inventories index at its lowest figure since June 2010 (35.8%), a level considered a positive for future production, and 3) the backlog of orders index expanding at a slightly faster rate compared to the previous three months.

Consumption (measured by the production and employment indexes) contributed negatively (a combined 7-percentage point decrease) to the manufacturing PMI calculation, with five of the top six industries continuing with moderate to strong output expansion. The employment index contracted after a single month of growth, primarily due to the inability to attract and retain direct labor.

Inputs — expressed as supplier deliveries, inventories and imports — continued to indicate input-driven constraints to production expansion, at higher rates compared to October, as indicated by minimal gains in inventory levels and a softening of imports. Input improvement stalled compared to October and contributed marginally to the Manufacturing PMI calculation. Prices continued to expand at higher rates, reflecting a clear shift to seller pricing power.

Among the six biggest manufacturing industries, fabricated metal products; chemical products; computer & electronic products; transportation equipment; and food, beverage and tobacco products registered solid growth in November.

In sum, of a total of 18 manufacturing industries, 16 reported growth in November.

“Manufacturing performed well for the sixth straight month, with demand, consumption and inputs registering growth, but at slower rates compared to October. Labor market difficulties, both current and anticipated, at panelists’ companies and their suppliers will continue to dampen the manufacturing economy until the coronavirus (COVID-19) crisis ends,” said Fiore.

One survey respondent from the food & beverage industry took note of some of the challenges involved: “We are getting a lot more COVID-19 hits in our factories…. We have had to shut down production lines due to lack of staffing. Cost of goods sold [COGS] is much higher than normal due to labor and production inefficiencies.”

Author Bio: Senior contributing editor, CFE Media