In August, growth in U.S. manufacturing increased, despite the fact that supply chains across the globe remain clogged and confused. The accelerating growth rates in the U.S. may have been driven by strong surges in orders, particularly from stores looking to restock shelves scoured during the first half of 2021.
According to the Institute for Supply Management (ISM), its index monitoring activity in U.S. manufacturing increased by 0.4 percentage points to 59.9. For comparison, the month before, the metric dropped by 1.1 percentage points to 59.5.
The ISM is a trade group made up of purchasing managers. Its manufacturing index shows growth in manufacturing any time the rate tops 50. The index has stayed above 50 for the past 15 months as of August, meaning that manufacturing has been growing at different rates for all that time. The increase in growth seen in August was somewhat surprising, but not a significant sign of recovery.
"A surprising turn of events for manufacturing activity in the U.S., but it doesn't change the story of supply disruptions and shortages holding back stronger growth," said Jennifer Lee, a senior economist at BMO Capital Markets.
The last time the index dropped below 50, meaning manufacturing constructed, was just after the pandemic began in April of last year. The coronavirus brought supply chains to a screeching halt, and things aren't back on track just yet. Surges in delta variant cases have only added to the strain, leading to shutdowns and staffing shortages.
"All segments of the manufacturing economy are impacted by record-long raw materials lead times, continued shortages of critical basic materials, rising commodities prices and difficulties transporting products," said chair of the ISM manufacturing survey committee Tom Fiore.
Supply chain problems have lightened up somewhat over the past few months, with delivery times dropping. Unfortunately, any progress that's been made could potentially be reversed by falling employment, the index for which dropped from 52.9 in July to 49.0 in August.
According to Fiore, the shortages show "a clear cycle of labor turnover as workers opt for more attractive job conditions." In August, factory employment, specifically, fell to its lowest level since last November, leading to a backlog of uncompleted factory work.
"While some of the recent price pressures have faded, supply constraints, and particularly labor shortages are still proving to be a drag," senior U.S. economist at Capital Economics, Michael Pearce, told reporters.
Economists suspect that the employment shortage may begin to ease now that unemployment benefits have begun to lapse and schools have reopened. However, the delta variant could discourage potential factory employees from returning to work.
The increase in manufacturing growth may not be a sign that things are getting back to normal, but it could be a sign that things won't be getting any worse, according to Reuters.