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Inflation Pressures a Concern as PMI Index Remains Strong

July 1, 2021
Price Index hits 42-year high, but manufacturing continues post-COVID expansion.

Add rising prices to the constraints on manufacturing growth in June, but even with a 42-year high in its Price Index, the Institute for Supply Management’s monthly PMI report held steady and strong.

The June PMI slipped to 60.6%, down six-tenths of a point from the May reading of 61.2% but still more than 20% above the growth level of 50%. The continued strong showing of the manufacturing sector comes despite rising prices, limited employment growth and continuing supply chain issues, with a shortage of semiconductor chips an area of particular concern.

The Prices Index, one component of the overall PMI, was up 4.1 percentage points to 92.1%, its highest level since June 1979, when that index was at 93.1%. It marked the 13th straight month of increases for the Prices Index, which Timothy R. Fiore, chair of the Institute for Supply Management’s Manufacturing Business Survey Committee, said is indicating “continued supplier pricing power and scarcity of supply chain goods.”

“Manufacturing performed well for the 13th straight month, with demand, consumption and inputs registering growth compared to May,” Fiore said in a press release. “Panelists’ companies and their supply chains continue to struggle to respond to strong demand due to the difficulty in hiring and retaining direct labor. Continued high backlog levels, too low customers’ inventories and record raw materials lead times are being reported. Labor challenges across the entire value chain continue to be the major obstacles to increasing growth.” Those sentiments were reflected in comments from committee members:

  • “Supply chain constraints, from mechanical to electronics (products) continue to be challenging, from both availability and logistics perspectives. Inflationary pressure on materials due to supply and demand imbalance. Electronic components by far the biggest challenge, with lead times going from 16 weeks to 52-plus weeks. Processors are a critical shortage, leading to us working 24/7 to redesign printed circuit board assemblies to change components.” (Computer & Electronic Products)
  • “Continue to see very strong demand across all business units. In many cases, we are limited on our ability to supply by raw-materials availability. Still running at record volume but could be producing much more. Even if we were able to get all the raw materials needed, we would have capacity issues on many of our production units. Manpower has been a concern.” (Chemical Products)
  • “Strong sales continue, and production output is at 100%. COVID-19 restrictions have been mostly lifted. Global chip allocation continues to limit some feature offerings — production schedules have been updated to restrict content affected by the chip shortage.” (Transportation Equipment)
  • “Poultry markets are higher, as demand for chicken has been very strong. Higher costs are starting to be passed along to customers.” (Food, Beverage & Tobacco Products)
  • “No major concerns or activity to report this month. Oil prices have continued to steadily rise, which gives our executive-level management confidence that our capital budgets are set to the correct amounts, and we can proceed with already planned projects without fear that they’ll need to be deferred or canceled due to dynamic oil markets.” (Petroleum & Coal Products)
  • “Demand continues to be strong, and customer-ordering patterns are shifting to include long-term demand. Customers are now placing orders for fourth quarter 2021 and first quarter 2022 due to global supply chain issues.” (Fabricated Metal Products)
  • “Other than material availability/volatility and rising prices, the outlook for our company is good. We can’t keep up with the increase in orders and have projects that may require a second shift to be added temporarily, but that might not be possible if material availability — for example, lumber products — remains an issue for us.” (Furniture & Related Products)
  • “Customer demand remains strong. Supply chain issues continue to hamper materials availability and impact production scheduling. Supplier costs continue to rise due to increasing materials, labor and shipping costs.” (Machinery)
  • “Higher prices, inflation and lack of available labor are impacting all organizations in our supply chain.” (Electrical Equipment, Appliances & Components)
  • “Supply disruptions continue, with no end in sight!” (Nonmetallic Mineral Products)
  • “We continue to be oversold, based on what we are currently capable of producing. Lack of labor is killing us.” (Primary Metals)

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