U.S. Manufacturing Growth Eases for a Third Straight Month on Covid Surge

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U.S. manufacturing growth lost a bit more steam in January amid a surge in coronavirus cases, while a measure of materials costs accelerated.

The Institute for Supply Management's gauge of factory activity fell to 57.6 -- the third straight decline and the lowest since November 2020 -- from 58.8 a month earlier, according to data released Tuesday. Still, readings above 50 signal expansion and the latest figures show manufacturing remains robust.

The group's measures of production and new orders both dropped to the lowest since mid-2020, suggesting the recent wave of infections due to the omicron variant may have hampered plant operations.

Prices for materials used in the production process -- already elevated amid lingering pandemic-related supply and demand imbalances -- jumped nearly 8 points last month. That was the largest advance since the end of 2020 and was probably a reflection, at least in part, of higher crude oil prices.

“The U.S. manufacturing sector remains in a demand-driven, supply chain-constrained environment, but January was the third straight month with indications of improvements in labor resources and supplier delivery performance,” Timothy Fiore, chair of ISM's Manufacturing Business Survey Committee, said in a statement.

Fourteen manufacturing industries reported growth in January, led by apparel and furniture.

The purchasing managers data showed supply constraints continued to ease, though they remain persistent. Supplier delivery times improved slightly and the ISM gauge of order backlogs fell to the lowest since October 2020.

The average lead time for materials used in production eased to 95 days in January. That's a slight improvement from recent readings in October and November which were the highest in data back to 1987.

There was a bigger drop in the average lead time for supplies used for maintenance, repairs and operations -- down to 46 days three months after reaching a record of 49 days. At the same time, the average delivery time for capital equipment jumped to a record 167 days.

The ISM data also showed factories were having greater success beefing up payrolls. An index of employment rose to a 10-month high. The government's jobs report on Friday is forecast to show manufacturers added nearly 25,000 workers in January.

Select ISM Industry Comments

“We are experiencing massive interruptions to our production due to supplier Covid-19 problems limiting their manufacturing of key raw (materials) like steel cans and chemicals.” - Chemical Products

“While there has been some improvement in materials making it to our factories and logistics centers, we are still constrained by (a lack of) qualified labor.” - Computer & Electronic Products

“Transportation, labor and inflation issues continue to hamper our supply chain and ability to service our customers.” - Transportation Equipment

“Lack of skilled production personnel, either from missing work due to (Covid-19) variants or leaving for better opportunities, making it more difficult to complete work.” - Fabricated Metals Products

“Transportation restrictions and a lack of supplier manpower continue to create significant shortages that limit our production.” - Machinery

“Our suppliers are having difficulty meeting scheduled releases as their suppliers experience delays and shortages, so lead times and inventories are struggling, resulting in lost production.” - Food & Beverage Products

Meantime, still-very lean factory customer inventories improved slightly. The ISM index rose to 33, the highest since January of last year.

Supply chains aren't expected to normalize for months as the pandemic continues to make it difficult for U.S. producers to adequately source product.

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