ISM Monthly Manufacturing Report Points Finger At Slower Deliveries From Suppliers

The slow pace of deliveries in the supply chain is creating a drag on the economic recovery, according to the latest monthly manufacturing Purchasing Managers Index from the Institute for Supply Management.

The ISM report put the index for supplier deliveries at 59. That is a 0.8 percentage point weakening from the 58.2 in August, and significantly worse than the 55.8 recorded for July. 

"Suppliers continue to struggle to deliver, with deliveries slowing at a faster rate compared to August," Timothy Fiore, chairman of the ISM's Manufacturing Business Survey Committee, said in a prepared statement. "Transportation challenges and continuing difficulties in supplier labor markets are still constraints to production growth."

Fiore's statement said the Supplier Deliveries Index "reflects the difficulties suppliers continue to experience due to COVID-19 impacts. These issues are not expected to diminish soon and, at this time, represent a continuing hurdle to production output and inventories growth." 

The slowdown in deliveries was not restricted to a few industries, according to the report. Of the 18 industries that are broken out by ISM in its manufacturing report, the only industry that had not reported a slowdown in supplier deliveries was petroleum and coal products.

The report contains several anonymous, random comments submitted by those surveyed. One of the more notable came from a contributor from the transportation equipment sector, who said this about current conditions: ""Business is booming, and the supply chain has been caught off guard. We are working closely with our suppliers to ensure supply and try to control costs." Getting more specific, the commenter noted: "The resin industry, along with plastics, is driving cost increases and scarce availability."

Overall, the PMI dropped to 55.4 from 56 in August. Industry forecasts were that the closely watched number would come in at 56.4. However, at that number, it still marks economic expansion. When the index contracted in April in the midst of the pandemic, it marked the end of 131 consecutive months of expansion.

As far as other specific economic conditions in the manufacturing sector, the slowdown in supplier deliveries was one of the reasons why inventories contracted. The Inventories Index for the month came in at 47.1%, rising from 44.4% a month earlier. That direction represents a contraction in inventories. 

"Inventory  levels remained in contraction due to continued strength in production and ongoing supplier difficulties," Fiore said in his statement. The only four sectors that reported higher inventories were apparel, leather and allied products; food, beverage and tobacco; miscellaneous manufacturing; and paper products.

Inventories are tightening at the customer level as well. The Inventories Index for customers stood at 37.9%, 0.2 percentage points wider than the 38.1 reported a month earlier. The ISM views that as "too low" but said it is "a positive for future production growth." It added that customer inventories have not been measured this low in more than 10 years. 

Other highlights of the report:

— The ISM price index was up 3.3 percentage points, "indicating raw materials prices increased for the fourth consecutive month." "Price growth continues to reflect a power shift toward sellers, as increased costs to produce input materials continue to be passed on to panelists' companies, Fiore said. The only two sectors to report lower costs were petroleum and coal and nonmetallic mineral products.

— New Export Orders were up to 54.3%, up 1 percentage point. Only one industry group was down: machinery. The others were mostly up, with six reporting flat export orders.

The 16 categories formally broken out by ISM align with NAICS industry sectors. They are Food, Beverage & Tobacco Products; Textile Mills; Apparel, Leather & Allied Products; Wood Products; Paper Products; Printing & Related Support Activities; Petroleum & Coal Products; Chemical Products; Plastics & Rubber Products; Nonmetallic Mineral Products; Primary Metals; Fabricated Metal Products; Machinery; Computer & Electronic Products; Electrical Equipment, Appliances & Components; Transportation Equipment; Furniture & Related Products; and Miscellaneous Manufacturing.

The ISM, in spelling out its index and what it means, says it reflects the net difference between the number of responses in the positive economic direction (higher, better and slower for Supplier Deliveries) and the negative economic direction (lower, worse and faster for Supplier Deliveries).

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