Economy

ISM Report on Business: Orders Rise Despite Supply Struggles
Written by David Schollaert
August 3, 2021
New orders, production and employment grew in July despite a deceleration is supplier deliveries and growing backlogs, said the Institute for Supply Management in the July 2021 Manufacturing ISM Report on Business. The Manufacturing PMI fell 1.1 percentage points in July to 59.5%, still above 50% and indicating expansion in the overall economy for the 14th consecutive month after contracting in April 2020.
“Manufacturing performed well for the 14th straight month, with demand, consumption and inputs registering growth compared to June. Panelists’ companies and their supply chains continue to struggle to respond to strong demand due to difficulties in hiring and retaining direct labor,” said Timothy Fiore, chairman of the ISM Manufacturing Business Survey Committee. “Comments indicate slight improvements in labor, and supplier deliveries offset by continued problems in the transportation sector. High backlog levels, too low customers’ inventories and near-record raw materials lead times continue to be reported. Labor challenges across the entire value chain and transportation inefficiencies are the major obstacles to increasing growth.”
New orders fell 1.1% from the month prior to 64.9% in July. Production slipped by 2.4 points to 58.4% as backlogs were a half percentage point higher last month at a reading of 65.0%.
Employment was 3.0% higher compared to the month prior, registering 52.9% in July. “The employment index returned to expansion after one month of contraction; panelists continued to note significant difficulties in attracting and retaining labor at their companies’ and suppliers’ facilities, although there were signs of improvement,” said Fiore.
Supplier deliveries retracted in July, down 2.6 points to a reading of 72.5%. Customer inventories also dipped in July to 48.9%, a 2.2-point decrease versus June’s reading, but far from the historical low of 28.0% seen in May.
Prices registered 85.7%, down 6.4% versus June, the index’s highest reading since July 1979. “The prices index expanded for the 14th consecutive month, indicating continued supplier pricing power and scarcity of supply chain goods,” said Fiore.
Both imports and exports contracted in July. The export orders index was 55.7%, a decrease of 0.5 points compared to the month prior, while the imports index was 53.7%, a 7.3-point decrease from the June reading.
“As we enter the third quarter, all segments of the manufacturing economy are impacted by near-record-long raw-material lead times, continued shortages of critical basic materials, rising commodities prices and difficulties in transporting products,” concluded Fiore. “All of the six biggest manufacturing industries — Computer & Electronic Products; Fabricated Metal Products; Chemical Products; Food, Beverage & Tobacco Products; Transportation Equipment; and Petroleum & Coal Products, in that order — registered moderate to strong growth in July.”
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David Schollaert
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