The rebound in U.S. manufacturing slowed in April as businesses struggled to find workers, supply-chain problems worsened, and prices of materials climbed.
The Institute for Supply Management’s April index for manufacturing fell four points to 60.7, the weakest level since January and missing expectations for a slight improvement from the March reading, data released Monday showed.
Despite the unexpected decline, the index indicates ongoing expansion—for the eleventh month in a row—for the factory sector. The index is based on a survey of executives, called purchasing managers, at manufacturing companies across the U.S. Any score over 50 indicates expansion.
All of the components of the index indicated a slowdown in growth. The subindex for new orders fell 3.7 points to 64.3. The production index fell 5.6 points to 62.5. Employment declined to 55.1, a 4.5 point drop. Supplier deliveries slipped 1.6 points to 75.0.
“Worker absenteeism, short-term shutdowns due to part shortages, and difficulties in filling open positions continue to be issues that limit manufacturing-growth potential,” said Timothy Fiore, chair of the institute’s survey committee. “Labor-market difficulties at panelists’ companies and their suppliers persist.”
Businesses across the U.S. have been sounding the alarm about the difficulty of attracting workers as they try to expand while the pandemic recedes. Some have said that enhanced unemployment benefits, which pay an extra $300 per week, are hindering efforts to draw employees back into the workforce. In Washington State, which has the most generous jobless benefits programs, workers can get up to $1,144 per week, the equivalent of $28 per hour. Three other states—Massachusetts, New Jersey, and Minnesota—also pay over $1,000 per week in maximum benefits. Arizona, which pays the least, has a maximum of $540 per week, about $14 per hour.
There are signs of rising inflationary pressures in the data released Monday. The prices index rose four points to 86, with all 18 of the industries tracked by ISM reporting higher prices for materials. In the last three months, the index has been at its highest levels since July 2008, when it registered 90.4 percent.
“Aluminum, copper, chemicals, all varieties of steel, plastics, transportation costs, wood and lumber products all continued to experience price increases as a result of product scarcity,” says Fiore.
The boost to the economy from the $1.9 trillion American Rescue Act, signed into law in mid-March, may be contributing to the snarl by pushing forward demand at the consumer level before suppliers have had time to ramp up production. This could complicate efforts to enact the Biden administration’s next two big spending proposals, the American Families Plan and the American Jobs Plan.
Several manufacturers cited supply shortages as hurting their ability to expand. Chip shortages were an area of particular attention.
“The current electronics/semiconductor shortage is having tremendous impacts on lead times and pricing. Additionally, there appears to be a general inflation of prices across most, if not all, supply lines,” an executive in the Computer & Electronic Products business said.
“Continued strong sales; however, we have had to trim some production due to the global chip shortage,” said an executive in the transportation sector.
Executives remain optimistic, however, and several say that demand for goods remains strong. That could indicate more growth ahead as more materials come on line to meet demand.
“Demand continues to be very strong. Supply chain delays hamper our availability and ability to sell more,” an executive in the machinery sector said.
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