The numbers: U.S. manufacturers are still struggling to cope with broad shortages of supplies and labor that are causing delays in production and holding back an economic recovery, a new survey showed.
A closely followed index of U.S.-based manufacturing dipped to a six-month low of 59.5% in July from 60.6%, according to the Institute for Supply Management. That was slightly below the Wall Street forecast.
Any number above 50% signifies growth. The survey had topped 60% for five months in a row in a reflection of the rebounding U.S. economy, but businesses could grow even faster if not for persistent difficulties in getting materials on time or finding people to hire.
A lack of “labor and supplies continue to hold back the expansion,” said Timothy Fiore, chairman of the survey.
These problems have forced companies to raise wages and prices, delay production in some cases and leave customers in the lurch.
In a potentially good sign, Fiore said price increases may have peaked and companies are starting to resolve supply bottlenecks.
“You are going to see prices drop as suppliers have more capacity to meet demand,” he said.
Big picture: Manufacturers have plenty of business due to a resurgent economy, but they can’t meet the explosion in pentup demand owing to persistent shortages tied to the pandemic.
These shortages are expected to clear up over time, but it may take awhile. The result is likely to be higher prices — inflation — and a somewhat slower economic recovery.
Key details: New orders and production fell slightly from very high levels. Inventories also declined into negative territory, a sign companies can’t keep up with demand because of production bottlenecks.
Manufacturers managed to put more people to work and even add some new hires, but labor shortages are expected to persist through the fall.
“Continue to have hiring difficulties and are unable to fill production and salaried jobs (due to) a lack of candidates,” said an executive at a maker of fabricated metal parts.
“Business levels continue to be very strong, but we also continue to struggle finding employees,” said another executive at a metal-producing firm. “We can only fill 75% of our order requirements due to the labor shortage.”
What they are saying? “There were signs that supply constraints, while still severe, are now beginning to ease slightly,” said senior U.S. economist Michael Pearce of Capital Economics.
“The two largest concerns for the U.S. economy’s potential growth in the near term — labor supply issues and price inflation— both have taken first steps toward easing as a threat to the economic recovery’s potential,” said economist Kurt Rankin of PNC Financial Services.