U.S. factory activity continued its robust expansion in June even as companies and suppliers struggled to meet increasing levels of demand amid constraints for raw materials, labor and supply chain services, according to the Institute for Supply Management. 

Manufacturing has grown for 13 consecutive months, spurred by consumer spending on goods over services and brands desperately trying to keep up and rebuild stocks depleted during the pandemic last year. The supply management organization said backlogs increased at a slower rate in June, in spite of strong new order levels.

Still, scarcity of raw materials and supply constraints are leading to inflation for manufactured products. And the employment index fell for the first time in seven months.

“Record-long raw material 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 parts shortages and difficulties in filling open positions continue to be issues that limit manufacturing-growth potential,” said Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee.

The June Purchasing Managers’ Index registered 60.6%, a decrease of 0.6 points from the previous month, but still in line with growth levels since December. A reading above 50 indicates the sector is expanding.

(Source: Institute for Supply Management)

The six largest manufacturing sectors — electronics, chemicals, fabricated metals, transportation equipment, food and beverage, and petroleum/coal — all registered moderate to strong growth in June. 

Companies in the survey said difficulty in hiring and retaining workers, continued high backlogs, extremely low customer inventories and record lead times for raw materials are hampering further growth.

New orders and production continued to expand at strong levels, but the Employment Index fell a point. A third of respondents said they are having difficulty filling positions and many blaming employee turnover on wage dynamics. Meanwhile, manufacturers said the delivery performance of suppliers was slower in June than the previous month for many of the same reasons, as well as inconsistent availability of transportation.

The ISM forecast supplier labor, materials and transportation constraints will continue into the third quarter, and possibly the fourth, putting further strain on production plans and raw material inventory levels. 

Participants said supply constraints are creating inventory instability and weakness. 

“Virtually all basic and intermediate manufacturing materials are experiencing price increases as a result of product scarcity and the dynamics of supply and demand, with an increasing number of panelists reporting higher prices compared to May,” Fiore said.

Imports expanded for the 12th consecutive month and a faster rate compared to May, reflecting continuing increases in U.S. factory demand and a measurable amount of throughput improvement at ports of entry. Overland transport challenges and container shortages continue to persist across the supply chain, but to a lesser degree, ISM reported. 

New export orders grew at a faster rate too in May.

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