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Supply struggles puts brakes on US manufacturing growth in April

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US factories lament long delays in getting supplies, as well as shortages, which is raising prices./AFP
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May 04, 2021 - 03:43 AM

WASHINGTON — America’s manufacturing rebound from the Covid-19 downturn slowed in April as factories struggled to obtain supplies, but companies were increasingly optimistic about the future, according to an industry survey released Monday.

The Institute for Supply Management (ISM) reported a surprise drop in its manufacturing index to 60.7 percent last month, four points lower than in March but still well above the 50-percent threshold indicating expansion.

ISM survey chair Timothy Fiore attributed the decline to snarls in supply chains that left factories either waiting for or bereft of raw materials.

The result defied analysts’ expectations for modest acceleration of manufacturing growth last month, even as it marked the 11th consecutive month of expansion for the sector.

“Recent record-long lead times, wide-scale shortages of critical basic materials, rising commodities prices and difficulties in transporting products are continuing to affect all segments of the manufacturing economy,” Fiore said in a statement.

“Worker absenteeism, short-term shutdowns due to part shortages and difficulties in filling open positions continue to be issues that limit manufacturing-growth potential.”

The supply issues caused “an undesired inventory draw down,” the report said.

Despite the difficulties, all manufacturing industries reported growth in March, and Fiore said there were 11 positive comments received for each negative one, up from eight in March.

Rubeela Farooqi of High Frequency Economics said, “Solid demand and lean inventories remain supportive of a full recovery in the manufacturing sector. But supply chain constraints are a headwind that could prevent an even stronger rebound.”

Supply chains worldwide have been creaking as Covid-19 vaccines help the global economy bounce back from the worst of the pandemic business restrictions imposed last year.

Struggles in obtaining parts caused inventories to drop more than four points into contractionary territory, while the backlog of orders metric rose slightly and supplier delivery times also lengthened — all of which contributed to a four-point jump in the prices index.

“In 35 years of purchasing, I’ve never seen everything like these extended lead times and rising prices,” a plastics and rubber products purchasing manager told ISM. “The only thing plentiful at present, according to my spam filter, is personal protective equipment.”

Despite that, Oren Klachkin of Oxford Economics said the supply chain issues were unlikely to be enough to stop the sector’s recovery, particularly as the economy’s reopening progresses.

“Looking ahead, inventory replenishment, rising capital investment, fiscal stimulus and reviving global growth will underpin buoyant manufacturing activity,” he said in an analysis. “Demand for goods will stay robust in the near term, but dissipate as the services sector fully reopens.”

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