U.S. ISM manufacturing survey shows further strength, production bottlenecks, and price pressures

U.S. ISM manufacturing survey shows further strength, production bottlenecks, and price pressures

*The ISM diffusion index for manufacturing dipped to 60.7 in the April survey from 64.7 in March, signaling continued strong growth in manufacturing (Chart 1). Components of the ISM report showed strength and bottlenecks in production and distribution, manufacturers’ intentions to increase hiring, and widespread price pressures.

*As a diffusion index, the ISM survey shows that over three-fifths of all manufacturers surveyed saw stronger business activity from the previous month when nearly two-thirds saw stronger growth over the previous month. These are the highest back-to-back monthly increases since 2004. The index for inventories receded to 46.5 and a record portion of manufacturing businesses responded that consumer inventories were too low (Chart 2). The indexes for new orders (64.3) and production (62.5) reflected continued strength in manufacturing. Export orders remains strong, 54.9 vs. 54.9, consistent with the global recovery driving demand for US products.

*The employment index was 55.1, down from 59.6. While 67.9% of businesses surveyed responded they would hold employment the same, nearly twice as many (21.2%) said they were increasing employment rather than reducing employment (10.9%).

*The index on supplier deliveries (75.0) hovered near March’s recording of 76.6 and March 2020 (76.0), reflecting slow deliveries and supply and distribution constraints (Chart 3). Respondents also expressed strains to buying policies (average commitment lead time in days): the lead time for obtaining production materials that exceeded 60 days and for maintenance, repair, and operating costs soared to all-time highs (Chart 4).

*The price index (not seasonally adjusted) rose to a sky-high 89.6 vs. 85.6 (Chart 5). Of note, 99.2% of businesses surveyed responded that prices were increasing or staying the same while only 0.9% said prices were falling (the data do not add to 100 due to rounding error).

Chart 1. ISM Manufacturing Diffusion Index

Chart 2. Consumer inventories index

Chart 3. Index of supplier deliveries

Chart 4. Buying Policy (average commitment lead time) for Production

Chart 5. ISM Manufacturing Prices index

Mickey Levy, mickey.levy@berenberg-us.com

Member FINRA & SIPC
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