Man contemplating supply and demand on a blackboard

PMI Rises in May, But so do Labor, Supply Chain Issues

June 2, 2021
The Index grows to 61.2%, but a persistent worker shortage slows the recovery’s expansion.

While the business of manufacturing has bounced back in the year since the pandemic began, the full recovery of the sector still faces significant supply and labor issues.

That was the conclusion June 1 when the Institute for Supply Management (ISM) released its PMI Index for May. The index grew 0.5 percentage points to 61.2%, more than 50% higher than the April 2020 contraction of the manufacturing economy and more than 20% above the PMI Index growth level of 50%. But persistent labor shortages in many sectors have members of ISM’s Manufacturing Business Survey Committee concerned.

“Committee panelists reported that their companies and suppliers continue to struggle to meet increasing levels of demand,” said Timothy Fiore, chairman of the committee. “Record-long lead times, wide-scale shortages of critical basic materials, rising commodities prices and difficulties in transporting products are continuing to affect all segments of the manufacturing economy. Worker absenteeism, short-term shutdowns due to part shortages, and difficulties in filling open positions continue to be issues that limit manufacturing-growth potential.”

The PMI Employment Index fell 4.2 percentage points in May to 50.9%, and while the New Orders Index increased 2.7 percentage points to 67.0%, the Backlog of Orders Index also rose 2.4 percentage points to 70.6%.

“Panelists continue to note significant difficulties in attracting and retaining labor at their companies’ and suppliers’ facilities,” Fiore said in a press release. “Consumption was clearly limited due to labor issues and supply constraints as demand remains very high. Inputs — expressed as supplier deliveries, inventories, and imports — continued to support input-driven constraints to production expansion, at higher rates compared to April, due to continued trouble in supplier deliveries.

While there is great optimism in the manufacturing sector, Fiore said, the issues now have gone beyond just helping manufacturing regain its footing after a slump that began back in 2018. “Manufacturing performed well for the 12th straight month, with demand, consumption and inputs registering strong growth compared to April,” Fiore said. “The manufacturing recovery has transitioned from first addressing demand headwinds, to now overcoming labor obstacles across the entire value chain.”

Committee members reflected those concerns in their monthly comments:

  • “Supplier performance — deliveries, quality, it’s all suffering. Demand is high, and we are struggling to find employees to help us keep up.” (Computer & Electronic Products)
  • “Changes in currency exchange rates favorably contributed to our quarterly performance. Continued strong consumer demand for our high-quality products also provided increased sales.” (Chemical Products)
  • “Ongoing component shortages are driving dual sourcing and longer-term supply plans to be implemented.” (Transportation Equipment)
  • “Difficulty finding workers at the factory and warehouse level is not only impacting our production, but suppliers’ as well: Spot shortages and delays are common due to an inability to staff lines. Delays at the port continue to strain inventory levels.” (Food, Beverage & Tobacco Products)
  • “(A) lack of qualified candidates to fill both open office and shop positions is having a negative impact on production throughput. Challenges mounting for meeting delivery dates to customers due to material and services shortages and protracted lead times. This situation does not look to improve until possibly the fourth quarter of 2021 or beyond.” (Fabricated Metal Products)
  • “Labor shortages impacting internal and supplier production. Logistics performance is terrible.” (Electrical Equipment, Appliances & Components)
  • “Business is good, but labor and raw materials are becoming very problematic, driving increases in costs.” (Furniture & Related Products)
  • “The continued global supply chain tightness and raw material shortages from the Gulf (winter storms) make it less likely that any business can recover this year. Demand is strong, but what good is that if you cannot get the materials needed to produce your finished goods?” (Nonmetallic Mineral Products)
  • “Seeing a high demand and backlog of orders.” (Plastics & Rubber Products)
  • “Very busy, but still experiencing labor shortages.” (Primary Metals)

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