On April 1, the Institute for Supply Management (ISM) released its latest Report on Business, a monthly publication that examines industry trends and statistics within the manufacturing sector.
The composite Purchasing Managers Index (PMI), referenced below, is compiled and used by the ISM to analyze the state of the economy and predict future growth or contraction based on five categories: New Orders, Production, Employment, Supplier Deliveries and Inventories. A PMI over 50% indicates that the manufacturing environment is expanding.
Here’s a rundown of the PMI for each month in Q1 2021 and Q1 2020:
Q1 2020 marked the beginning of the COVID-19 challenges for the industry. A year later, the manufacturers have learned to adapt, but continue to face many of the same challenges noted at the end of 2020. March 2021 was the tenth straight month of expansion since April 2020. Panelists expressed optimism, offering eight positive comments to every one negative comment in their responses.
Demand, which includes New Orders, New Export Orders and Backlog of Orders, continued to increase. New Orders and New Export Orders were at 68% and 54.5%, respectively, in March 2021. Food, Beverage & Tobacco Products, Chemical Products, Fabricated Metal Products and Transportation Equipment all saw growth in New Export Orders. The backlog of Orders increased significantly from December 2020 (59.1% in December 2020 vs. 67.5% in March 2021). This growth in Backlog of Orders was seen in five of the six big industry sectors.
Consumption, which is comprised of Production and Employment, continued to expand. Production’s reading came in at 68.1% in March. This was the highest reading since January 2004, when it had reached 69.3%. All six of the big industry sectors saw growth in production. Employment clocked in at 59.6% in March, which is the highest reading since June 2011. Based on the most recent Department of Labor news release, unemployment has stayed consistent from December 2020 through February 2021 at 6.2%.
Inputs, which include Supplier Deliveries, Inventories and Imports, continued to expand to meet increased demand. Supplier Deliveries increased from 67.7% in December to 76.6% in March. Supplier Deliveries is a unique index, since it shows an inverse relationship. It assumes that deliveries will be slower in times of economic growth due to increased demand. Inventories decreased from 51% in December to 50.8% in March but still showed growth, since the reading is greater than 50%. Imports grew over the last three months from 54.6% in December to 56.7% in March. Of the 18 tracked manufacturing industries noted, 11 increased imports in March. Only Paper Products experienced decreased imports in March, and the other six industries neither increased nor decreased.
Although inputs show expansion, panelists noted continued challenges with supply chain management and personnel matters. They continue to experience shortages of materials and increased lead times on delivery. Prices have increased significantly on commodities. Lumber increased from $873.10 in December to $1,009.10 in March. Crude oil prices grew from $48.42 in December to $59.43 in March, and aluminum jumped from $1,979.35 in December to $2,213.44 in March. Aside from the materials, labor continues to be a challenge. Many panelists noted they are having trouble attracting and retaining employees. Additionally, they have seen continued absenteeism from their employees.
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