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U.S. Manufacturing Sector Expanded Sharply in June But Supply Woes Persisted — ISM

By Xavier Fontdegloria

 

U.S. manufacturing activity grew robustly in June amid strong demand, but the growth pace lost some steam as supply-chain strains and labor shortages continued to weigh on production.

The ISM Manufacturing Report on Business PMI decreased to 60.6 in June from 61.2 in May, according to data from a survey compiled by the Institute for Supply Management released Thursday. The reading is slightly below forecasts from economists polled by The Wall Street Journal, who expected the index to stand at 61.0.

Data for June signal that factory activity across the country expanded strongly, with four out of five subindexes that form the headline index in growth territory--except for the employment index. A PMI reading above 50 indicates that the manufacturing economy is generally expanding, while below 50 indicates that it is generally declining.

Momentum in the U.S. manufacturing sector is strong as consumers continue to spend on goods and companies need to rebuild their inventories. However, goods producers can't keep up with demand amid widespread materials and labor shortages. These supply-chain and logistics bottlenecks could take time to unwind and extend to early next year, economists say.

"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," said Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee.

Demand continued to expand in June, albeit at a slower pace than in May. The new orders index fell slightly to 66 from 67 the previous month, customers' inventories index remained at a very low level at 30.8 and the backlog of orders eased somewhat to 64.5 from 70.6 in May.

The production index increased to 60.8 from 58.5. The employment index fell into contraction after expanding for six straight months as respondents reported difficulties in attracting and retaining labor.

"Labor challenges across the entire value chain continue to be the major obstacles to increasing growth," Mr. Fiore said.

Data didn't provide any significant sign that pressures on supply chains eased significantly in June. The supplier delivery index fell slightly to 75.1 but remained at high levels, while the inventories index increased to 51.1 from 50.8 the previous month.

Cost pressures continued to build up in June compared with the previous month. The prices index climbed to 92.1 from 88.0 in May, indicating continued supplier pricing power and scarcity of supply chain goods.

"Higher prices, inflation and lack of available labor are impacting all organizations in our supply chain," a respondent from the electrical equipment sector said.

 

Write to Xavier Fontdegloria at xavier.fontdegloria@wsj.com

 

(END) Dow Jones Newswires

July 01, 2021 10:49 ET (14:49 GMT)

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