IHS Markit: U.S. Manufacturing Sector "Continues to Run Hot"

Written by David Schollaert

The U.S. manufacturing sector continued strong in September, though the PMI dropped to a five-month low due to ongoing material and labor shortages, according to the latest U.S. Manufacturing PMI data from IHS Markit.

“The U.S. manufacturing sector continues to run hot, with demand once again racing well ahead of production capacity as firms report widespread issues with supply chains and the availability of labor,” said Chris Williamson, chief business economist at IHS Markit. “The inability to meet demand amid near-record shortages of inputs and labor not only led to an unprecedented rise in backlogs of work as orders sat unfulfilled, but prices charged for those goods leaving the factory gate also surged higher again in September, rising at a rate exceeding anything seen in nearly 15 years of survey history.”

Demand conditions softened from the peaks seen earlier in the year, but both domestic and foreign client orders rose at historically elevated rates. Pressure on capacity was reflected in the fastest uptick in backlogs of work on record, as challenges expanding workforce numbers persisted.

The seasonally adjusted IHS Markit PMI posted a reading of 60.7 in September, down from 61.1 in August, but broadly in line with the earlier released “flash” estimate of 60.5 (a reading above 50.0 indicates growth). The latest data indicated a marked improvement in the health of the U.S. manufacturing sector, despite being the slowest since April.

Demand conditions across the manufacturing sector remained strong at the end of the third quarter, as new sales rose significantly, suggesting new order growth stemmed from stockpiling efforts. Foreign client demand strengthened in September. New export orders rose at the fastest pace for four months.

Firms seeking to relieve capacity constraints by expanding their workforce numbers in September were met with labor shortages. Although employment rose at a solid pace, challenges finding suitable candidates persisted.

Meanwhile, input costs increased at the second-fastest rate since data collection began in May 2007, easing only slightly from August’s high. The sustained rise in cost burdens was linked to greater transportation charges and supplier price hikes, causing firms to raise their selling prices at the fastest pace on record in September.

“With COVID-19 cases showing signs of having peaked early both domestically and globally, some of the supply chain and labor shortage issues should start to ease, in turn taking some of the pressure off prices,” Williamson added. “But a dip in manufacturers’ expectations for the year ahead to the lowest for four months due to supply worries underscores how production is likely to be adversely affected by shortages for some time to come.”

David Schollaert

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