U.S. factory activity grows at slightly slower pace in June

SILVER SPRING, MD. >> Growth in U.S. manufacturing slowed slightly in June, as supply chain problems persist and businesses say they are still struggling to find workers to keep up with demand.

The Institute for Supply Management, a trade group of purchasing managers, said Thursday that its index of manufacturing activity ticked down in June to a reading of 60.6 from 61.2 in May.

Any reading above 50 indicates manufacturing is expanding. June was the 13th consecutive month manufacturing has grown after contracting in April 2020, when coronavirus fears triggered business shutdowns across the country.

Production, which increased to a reading of 60.8 last month, might have seen an even stronger bump if not for raw materials shortages and labor issues, including absenteeism and turnover.

The employment index dipped into contraction territory, falling to 49.9 in June from 50.9 in May. An overwhelming majority of panelists surveyed said their companies are hiring or attempting to hire, with more than a third of them having difficulty filling positions. Panelists said employee turnover due to “wage dynamics” was a problem — in other words, workers leaving jobs for better pay.

Not coincidentally on Thursday, the Labor Department reported that the number of Americans applying for unemployment aid fell again last week to the lowest level since the pandemic struck last year. The rollout of vaccines has sharply reduced new COVID-19 cases, giving consumers the confidence to get out and spend money.

That pent-up spending has created a massive, almost overnight need for workers, and employers have been struggling to fill jobs and keep up with demand.

“Lack of labor is killing us,” said one respondent. “Manpower has been a concern,” another said.

On top of demand, ongoing supply chain issues and material shortages are driving prices up to levels not seen in more than 40 years.

The ISM price index registered 92.1, jumping 4.1 points from the May reading of 88, as raw materials prices increased for the 13th consecutive month. It’s the index’s highest level since July 1979 when it hit 93.1.

“Virtually all basic and intermediate manufacturing materials are experiencing price increases as a result of product scarcity and the dynamics of supply and demand, with an increasing number of panelists reporting higher prices compared to May,” said Timothy Fiore, chair of the ISM manufacturing survey committee.