Economic activity in the manufacturing sector grew in May, with the overall economy notching a 12th consecutive month of growth, according to the latest Manufacturing ISM Report on Business from the Institute for Supply Management.

“The May Manufacturing PMI registered 61.2%, an increase of 0.5 percentage point from the April reading of 60.7%. This figure indicates expansion in the overall economy for the 12th month in a row after contraction in April 2020,” Timothy R. Fiore, CPSM, CPM, chair of the Institute for Supply Management’s manufacturing business survey committee, said. “The New Orders Index registered 67%, increasing 2.7 percentage points from the April reading of 64.3%. The Production Index registered 58.5%, a decrease of four percentage points compared to the April reading of 62.5%. The Backlog of Orders Index registered 70.6%, 2.4 percentage points higher compared to the April reading of 68.2%. The Employment Index registered 50.9%; 4.2 percentage points lower than the April reading of 55.1%. The Supplier Deliveries Index registered 78.8%, up 3.8 percentage points from the April figure of 75%. The Inventories Index registered 50.8%, 4.3 percentage points higher than the April reading of 46.5%. The Prices Index registered 88%, down 1.6 percentage points compared to the April reading of 89.6%. The New Export Orders Index registered 55.4%, an increase of 0.5 percentage point compared to the April reading of 54.9%. The Imports Index registered 54%, a 1.8-percentage point increase from the April reading of 52.2%.

“The manufacturing economy continued expansion in May. Business survey committee panelists reported that their companies and suppliers continue to struggle to meet increasing levels of demand. 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. Worker absenteeism, short-term shutdowns due to part shortages and difficulties in filling open positions continue to be issues that limit manufacturing-growth potential. Optimistic panel sentiment increased, with 36 positive comments for every cautious comment, compared to an 11-to-1 ratio in April.

“Demand expanded, with the (1) New Orders Index growing at a strong level, supported by the New Export Orders Index continuing to expand; (2) Customers’ Inventories Index hitting another all-time low; and (3) Backlog of Orders Index continuing at a record-high level. Consumption (measured by the Production and Employment indexes) indicated slowing expansion, posting a combined 8.2-percentage point decrease to the Manufacturing PMI calculation. The Employment Index expanded for the sixth straight month, but panelists continue to note significant difficulties in attracting and retaining labor at their companies’ and suppliers’ facilities. Consumption was clearly limited due to labor issues and supply constraints as demand remains very high.

“Inputs — expressed as supplier deliveries, inventories and imports — continued to support input-driven constraints to production expansion at higher rates compared to April due to continued trouble in supplier deliveries. Inputs positively contributed to the PMI calculation by a combined 8.1 percentage points. Importation of items slightly improved in the period. (The Inventories and Supplier Deliveries indexes directly factor into the PMI; the Imports Index does not.) The Prices Index expanded for the 12th consecutive month, indicating continued supplier pricing power and scarcity of supply chain goods.

“All of the six biggest manufacturing industries — computer and electronic products; fabricated metal products; food, beverage and tobacco products; chemical products; transportation equipment; and petroleum and coal products, in that order — registered moderate to strong growth in May.

“Manufacturing performed well for the 12^th-straight month, with demand, consumption and inputs registering strong growth compared to April. Panelists companies and their supply chains continue to struggle to respond to strong demand due to the difficulty in hiring and retaining direct labor. Record backlog, customer inventories and raw material lead times are being reported. The manufacturing recovery has transitioned from first addressing demand headwinds to now overcoming labor obstacles across the entire value chain.”

Sixteen of 18 manufacturing industries reported growth in May, including transportation equipment, electrical equipment and primary metals. Printing and related support activities was the only industry that reported contraction in May.

What Respondents Are Saying

• “Supplier performance — deliveries, quality, it’s all suffering. Demand is high and we are struggling to find employees to help us keep up.” (Computer and Electronic Products)
• “Changes in currency exchange rates favorably contributed to our quarterly performance. Continued strong consumer demand for our high-quality products also provided increased sales.” (Chemical Products)
• “Ongoing component shortages are driving dual sourcing and longer-term supply plans to be implemented.” (Transportation Equipment)
• “Difficulty finding workers at the factory and warehouse level is not only impacting our production but suppliers’ as well. Spot shortages and delays are common due to an inability to staff lines. Delays at the port continue to strain inventory levels.” (Food, Beverage and Tobacco Products)
• “[A] lack of qualified candidates to fill both open office and shop positions is having a negative impact on production throughput. Challenges mounting for meeting delivery dates to customers due to material and services shortages and protracted lead times. This situation does not look to improve until possibly the fourth quarter of 2021 or beyond.” (Fabricated Metal Products)
• “Labor shortages impacting internal and supplier production. Logistics performance is terrible.” (Electrical Equipment, Appliances and Components)
• “Business is good, but labor and raw materials are becoming very problematic, driving increases in costs.” (Furniture and Related Products)
• “The continued global supply chain tightness and raw material shortages from the Gulf (winter storms) make it less likely that any business can recover this year. Demand is strong, but what good is that if you cannot get the materials needed to produce your finished goods?” (Nonmetallic Mineral Products)
• “Seeing a high demand and backlog of orders.” (Plastics and Rubber Products)
• “Very busy but still experiencing labor shortages.” (Primary Metals).