Even as US manufacturing slows, industries point to easing of supplies

By: Robert Besser, BigNewsNetwork

PITTSBURGH, Pennsylvania: In December, U.S. manufacturing slowed due to a cooling in demand for goods, but supply constraints are beginning to ease and a measure of prices paid for inputs by factories fell by its highest level in a decade, said industry officials.

The Institute for Supply Management (ISM) survey released on January 4 also highlighted some labor supply improvements, with a measure of factory employment rising to an eight-month high.

However, "shortages of critical lowest-tier materials, high commodity prices and difficulties in transporting products continue to plague reliable consumption," said Timothy Fiore, chair of the ISM manufacturing business survey committee, as quoted by Reuters.

The survey has not yet considered the impact of the Omicron variant of COVID-19, which is rapidly spreading across the U.S. and the world.

"There is still a lot of ground to make up before supply chains fully normalize, but cooling prices and increased employment are positive signs," said Will Compernolle, a senior economist at FHN Financial in New York, as quoted by Reuters.

Last month, the ISM's index of national factory activity dropped to its lowest level since January 2021, falling to 58.7 from 61.1 in November. A reading above 50 indicates expansion in manufacturing, which accounts for 11.9 percent of the U.S. economy.

Economists polled by Reuters predict the index would fall to 60.1.

The top six manufacturing industries, which are chemical products, fabricated metal products, computer and electronic products, food, transportation equipment, and petroleum and coal products, all reported moderate to strong growth.

The manufacturers association of fabricated metal products noted, "We have reached the top of the hill to start down a gentle slope that lets us get back to something that resembles normal," while the chemical products industry said their "gut feeling says it is getting easier to source chemical raw materials."

Meanwhile, the machinery makers association reported, "Costs for steel seem to be coming down some," but transportation equipment manufacturers said capacity remained "limited due to the global chip shortage."

The ISM's Fiore added that while there are signs of improvement in transportation networks, an indicator of future supplier delivery performance, transportation was still performing erratically.

In addition, as global economies recover from the pandemic, raw materials have been in short supply.

But signs of improvement in supply chains indicate inflation caused by production could soon begin to ease.

The survey's measure of prices paid by manufacturers fell to 68.2 last month, the lowest level since November 2020, which had been at 82.4 in November. The 14.2-point decline was the sharpest since October 2011.

This supports the view of the Federal Reserve that the current period of high inflation, well above its flexible 2 percent target, is transitory.

Tim Quinlan, senior economist at Wells Fargo in Charlotte, North Carolina, said, "The report is consistent with our expectation that inflation will hit an inflection point, probably in the first quarter of this year," as reported by Reuters.

Factories hired more workers, but turnover remained high, a trend that began in August, according to manufacturers.

Meanwhile, a Labor Department report released on January 4 showed a record 4.5 million American employees voluntarily quit their jobs in November, which will put pressure on businesses to raise wages to attract workers.

"Replacing those workers is proving unusually challenging. This is the tightest labor market ever," Julia Pollak, chief economist at ZipRecruiter, told Reuters.