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US manufacturing expansion hits one-year mark amid supply backlogs

·2-min read
US factories were struggling to find qualified employees, a problem felt across the world's largest economy as it bounces back from the Covid-19 pandemic

The US manufacturing sector hit the one-year mark in its recovery from the slump brought on by the Covid-19 pandemic, but factories struggled with snarled supply chains, an industry survey said Tuesday.

The Institute for Supply Management (ISM) reported its manufacturing index in May rose to 61.2 percent from April, slightly more than expected and above the 50-percent mark indicating expansion for the 12th straight month.

Manufacturers responding to the survey were broadly optimistic, but complained of issues getting inputs and employees -- concerns shared by businesses across the US economy as vaccines help them bounce back from the worst of the pandemic disruptions.

"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," ISM survey chair Timothy Fiore said.

The supplier deliveries index rose nearly four percentage points to 78.8 percent, the highest since April 1974, indicating longer delivery times.

Employment dropped to 50.9 percent as firms struggled to find workers to fill open positions, the survey showed.

"Demand is strong, but what good is that if you cannot get the materials needed to produce your finished goods?" a nonmetallic mineral products company told the survey.

New orders jumped 2.7 points to 67 percent, but production fell four points to 58.5 percent.

Prices have hovered for the past four months at their highest levels since July 2008, but in May ticked down slightly to 88 percent, ISM said.

Oren Klachkin of Oxford Economics predicted the supply and hiring troubles would be merely temporary obstacles for a sector that is poised to grow strongly this year.

"Positive fundamental drivers, including robust domestic demand, substantial fiscal stimulus and recuperating external demand, will keep factories churning out goods at a very solid pace," he said in an analysis.

"Shipping and supply chain bottlenecks will constrain, but not spoil, the manufacturing sector's expansion."

cs/hs

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