Factory growth slows in July
The US manufacturing sector grew at a more moderate, but still strong, pace in July as producers grappled with persistent bottlenecks and input shortages.
The Institute for Supply Management’s factory activity gauge eased for a second month, to 59.5 from 60.6 in June, according to data released Monday. Readings above 50 indicate expansion. The median projection of a Bloomberg survey of economists called for a reading of 61 in July.
Order books have reached a high level as the production measure has cooled, suggesting that supply and shipping issues are holding back manufacturing growth.
“Businesses and suppliers continue to struggle to meet increasing levels of demand,” said Timothy Fiore, chair of the institute’s manufacturing enterprise inquiry committee, in a statement. “As we enter the third quarter, all segments of the manufacturing economy are affected by near-record raw material delivery times, continued shortages of critical raw materials, rising raw material prices and product transport ”.
Due to these production constraints, factories had to reduce their inventories to cope with robust growth in demand. In the second quarter, business equipment investment posted another solid increase, and consumer spending accelerated at one of the fastest rates in decades, according to government figures released last week.
July was the 14th consecutive month of manufacturing growth following a contraction in April 2020 when the coronavirus sparked business closures nationwide.
The institute’s customer inventory index fell to an all-time high last month. Replacing these depleted stocks should fuel production gains in the coming months, but it is not known when these production constraints will ease.
The gauge of prices paid by the group for raw materials cooled in July to a still high level of 85.7 after reaching in June its highest level since 1979.
A factory employment gauge rebounded in July, showing companies were slightly more successful in hiring workers during the month. The monthly government employment report released on Friday is expected to show wages in the manufacturing sector increased by 30,000 in July. Overall employment is expected to increase by around 875,000.
Fiore expects current labor shortages to ease and more people will join the workforce in the coming months as the increase in unemployment benefits wanes and students go back to school.
Others see the potential for lingering problems in the supply chain.
“Consumer demand will continue to provide a platform for the recovery of the manufacturing sector after the pandemic-induced recession, but the scarcity of intermediate goods, components and labor resources will act as a drag on the pace. growth, ”said Kurt Rankin, PNC economist. in a research note.
Seventeen of the 18 manufacturing industries recorded growth last month, led by furniture, printing and clothing.
The only industry that recorded a decline in July from the previous month was the textile mill.
The report also showed that the average lead time for materials used in the production process eased slightly to 86 days in July, from a record 88 days a month earlier.
Information for this article was provided by Vince Golle of Bloomberg News (WPNS) and Martin Crutsinger of The Associated Press.