June manufacturing data marks a strong first half of 2021 for the sector, reports ISM

Manufacturing activity finished the first half of 2021 on solid footing, according to data issued today by the Institute for Supply Management (ISM).

In its monthly Manufacturing Report on Business, ISM said that the report’s key metric, the PMI, at 60.6 (a reading of 50 or higher indicates growth), slipped 0.6% from May to June. This represents the 13th consecutive month of PMI growth, coupled with June also representing the 13th consecutive month of growth for the overall economy. And the June PMI is 1.5% above the 12-month average of 59.1, with March’s 64.7 being the high and July 2020’s 53.7 being the low for that period.

ISM reported that seventeen of the 18 manufacturing industries it tracks saw growth in June, including: Furniture & Related Products; Machinery; Electrical Equipment, Appliances & Components; Computer & Electronic Products; Plastics & Rubber Products; Chemical Products; Fabricated Metal Products; Transportation Equipment; Miscellaneous Manufacturing; Nonmetallic Mineral Products; Textile Mills; Primary Metals; Food, Beverage & Tobacco Products; Paper Products; Printing & Related Support Activities; Wood Products; and Petroleum & Coal Products. No industry reported a decrease in June.

The report’s key manufacturing metrics were mixed in June.

New orders, which are commonly referred to as the engine that drives manufacturing, fell 1%, to 66, growing, at a slower rate, for the 13th consecutive month. ISM said 15 of 18 manufacturing sectors reported growth in June.

Production—at 60.8—increased 2.3%, from May to June, growing for the 13th straight month, with 14 manufacturing sectors growing, and employment—at 49.9—off 1%, declining after six months of growth.

Other notable metrics included:

• Supplier deliveries—at 75.1 (a reading above 50 indicates contraction)—slowed, at a faster rate, for the 64th consecutive month, following May’s 78.8, with the delivery performance of suppliers to manufacturing organizations again slower in June;  
• Backlog of orders—at 64.5—off 6.1% compared to May’s 70.6, the highest reading for this subindex since ISM started reporting it in January 1993, and growing, at a slower rate, for the 12th consecutive month;
• Customers’ inventories—at 30.8—up 2.8%, slowing for the 57th consecutive month; and
• Prices—at 92.1—increasing, at a faster rate, for the 13th consecutive month, hitting its highest level since July 1979, at 93.1, and the sixth straight month it has topped 80

Comments from ISM respondents included in the report reflected the impact of businesses re-opening, coupled with concerns on different fronts, too.

“Supply chain constraints, from mechanical to electronics (products) continue to be challenging, from both availability and logistics perspectives,” said a Computer & Electronic Products respondent. “Inflationary pressure on materials due to supply and demand imbalance. Electronic components by far the biggest challenge, with lead times going from 16 weeks to 52-plus weeks. Processors are a critical shortage, leading to us working 24/7 to redesign printed circuit board assemblies to change components. We are extending our PO coverage over 12 months in many cases and committing to non-cancelable, non-returnable (NCNR) terms to assure supply.”

Other themes cited by respondents included: higher prices, lack of labor, inflation, and supply disruptions, among others.

Tim Fiore, Chair of the ISM’s Manufacturing Business Survey Committee, said in an interview that the lack of needed and available labor remains a constant in manufacturing, adding that there are some signs that things are looking up on the supplier deliveries front, in terms of the general flow, coupled with inventories not contracting and slightly expanding and entering expansion territory, which is viewed as a positive.

“The inventory number of encouraging, especially with production at almost 61,” he said. “There was also a nice kick on the imports side [up 7% to 61, growing for the 12th straight month], which is the highest we have seen in a long time. The feeling is that import growth will continue most likely through the end of the year.”

With six months of manufacturing data now complete in 2021, Fiore said the collective numbers on balance reflect healthy demand, which is reflected in the PMI topping 60 over the last five months through June.

“The flipside of that is the struggle to keep up with the demand side,” he said. “It is still that way, but there are some signs of things letting up a little bit. And with prices seeing its highest growth rate since 1979, that part is alarming and viewed as a negative for June, but on the other hand, it means that everyone has pushed through price increases at all levels of the supply chain. Then the big question is with all of these raw materials increases at its lowest levels, are you able to push them through to your customers? I think the answer is yes.”

Looking ahead, Fiore said that until the labor picture brightens, the pricing issues, coupled with the longest manufacturing lead times on record in June, highlight how the sector remains without access to a full labor market. But he said that access is likely to come in September and October.    What’s more, he added that the fourth quarter will likely be the first full months of post-pandemic manufacturing operations in a free and open market.