Manufacturing Surges, but Shortages May Persist

The U.S. manufacturing sector turned in a relatively strong performance in July, adding 12,000 jobs and increasing its payrolls by 240,000 compared with the previous month. The increase was reminiscent of the robust job growth that the sector has posted in recent months, and which has had a positive impact on the nation’s economy.

“Industry statistics show that the manufacturing sector is experiencing a healthy year, and that’s a good thing. But a few things seem to have gone missing: orders from large, long-established clients, and the nuts and bolts of making things, such as steel and aluminum. And certain manufacturing jobs that could be filling those orders may not be. So the job of the US economy this year is to make sure that the goods Americans need continue to get made. A lot of manufacturing work is still in short supply, even as the industry seems to be making up for lost time in other areas.”

Manufacturers trying to meet the demand are facing a tough ask: How sustainable will this demand be once the Covid 19 crisis is over? The Institute for Supply Management announced Tuesday that its index of industrial activity rose to 61.2 last month from 60.7 in April. Any number above 50 indicates an increase in production. This data reflects the exceptionally high demand for goods as a result of the pandemic. Unable to spend money on services like travel and dining out, and in many cases with extra money from government benefits, Americans preferred to buy things. But as the number of Covid 19 cases drops and the percentage of Americans vaccinated continues to rise, it’s hard to say how long this celebration will last. On the one hand, it seems likely that consumers will spend more money on services as the economy picks up, a change that could be very significant as people catch up. For example, families can extend their holidays or turn one restaurant visit a week into two. And demand for many products can be postponed – a big screen TV bought to wait out a pandemic will never be bought again. word-image-10122

Sealstrip, a manufacturer of packaging components, has felt the effects of supply chain delays.

Photo: Hannah Yoon for The Wall Street Journal But despite these opportunities, demand for goods still exceeds supply in many cases, and global shortages of computer chips and other supply chain bottlenecks make it even harder for manufacturers to produce enough products. The index of lagging manufacturing orders reached its highest level Tuesday since the ISM began compiling it in 1993. And the ISM supplier supply index, which rises when delivery times slow, reached its highest level since 1974. Moreover, the fact that people spend more on services does not necessarily mean that their propensity to buy goods disappears. Over the past year, many Americans have significantly increased their savings, allowing them to boost their overall spending, and the ongoing recovery in the labor market could further boost demand. The pandemic-related housing boom could also play a role, as there are rooms and garages that need to be filled. In fact, a recent analysis Bank of America Bank Economists’ credit and debit card data showed that spending on durable goods (consumer durables such as cars and sofas) remained as high in Florida as in California, although Florida’s earlier opening led to an acceleration in spending on services. Of course at some point the demand for goods will be met, and if history is any guide, this can be quite unexpected – there are many examples where the ISM industrial activity index has fallen rapidly from high levels to below 50. In retrospect, manufacturers realize that once they feel they have orders under control, they can slow down, shifting the supply/demand balance in the other direction. But today the emphasis is on how to evolve with the times. An average of 30 container ships a day are moored outside the ports of Los Angeles and Long Beach, waiting to deliver their cargo. This delay is part of the global supply chain chaos caused by the pandemic, which means that consumers should expect delivery delays of several weeks. Photo composition: Adam Falk/The Wall Street Journal (video from 4/12/21). Email Justin Lahart at [email protected]. Copyright ©2020 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8

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