May 3, 2021
by Juliet Jeske
The U.S. manufacturing sector dipped slightly in April but is still showing tremendous momentum which is a sign that the economy is headed for a robust recovery from the COVID-19 crisis.
The April Manufacturing Purchasing Managers Index, a monthly survey of the manufacturing industry, registered at 60.7% down 4 percentage points from a 37 year high of 64.7% in March. Readings over 50% are considered a sign of growth. All 18 manufacturing sectors tracked in the PMI report reported growth in April.
“Obviously it is still very strong, and we had somewhat of a downdraft,” said Michael Englund, chief economist, Action Economics. “The report also captured the reasons for the slide which are shortages of various products and supply chain disruptions.”
Increased demand for manufactured goods has caused historically high levels of growth in the manufacturing sector, so much so suppliers can’t quite keep up with demand. The mild dip in April in the Institute of Supply Management index is due to pressures on supply chains, shortages of raw materials, and labor, all of which are leading to backed up orders and price increases.
The US economy added 916,000 jobs in March and unemployment dipped to 6%. Although 9.7 million Americans are still out of work, the $1.2 trillion federal stimulus plan should help increase spending which could help bring back more jobs. The personal savings rate in March was extremely high at 27.6%. Overall, the outlook for the U.S. economy is still extremely positive.
Another sign for increased growth for the long term is the Biden administration’s proposed $2.3 trillion infrastructure program. The bill faces numerous hurdles in the House and Senate but it’s the largest infrastructure program since WWII.
The biggest speed bump in manufacturing is the semiconductor microchip shortage which has caused critical problems for the auto industry. When COVID-19 first hit most automakers slowed down production. As people started working from home, they ordered more electronics and personal computers which also require semiconductor chips.
Now that demand for new cars is back suppliers can’t make enough chips for all industries fast enough. The chip shortage was amplified by the Trump administration’s trade wars with China.
Despite the hurdles faced by manufacturers, small business owners are reaping the benefits of the recovering economy. Even though he’s facing difficulties finding and purchasing manufactured roofing supplies Brian Woodson of Bar C Metal Roofing has no shortage of customers. Woodson has some customers who have waited for weeks or months for specific types of roofing. The reason this hasn’t hurt his business is that none of his competitors can get the same coveted materials.
“At this point I will buy from any supplier who has what I need,” said Woodson. Some metals I just can’t get but I have great relationships with my suppliers. I keep in contact with them constantly. Although what we are going through is tough right now it’s a lot better than not having enough jobs coming in.”
Manufacturers and their suppliers should eventually catch up as other sectors of the economy such as leisure, hospitality and travel open back up again and consumers reduce spending on goods. So far roughly 105 million Americans or 31.9% of the US population is fully vaccinated for COVID-19. This is great news for industries that have been mostly dormant during the pandemic.
The pressures on the manufacturing industry could easily shift to other sectors.
“Everybody’s going to want to take a vacation to somewhere everybody’s going to be looking for the same airplane, ticket, and the same hotel room, and a rental car,” said Stephen Stanley chief economist, Amherst Pierpont Securities. “Once everything is back you’re going to have the same pressures in those industries that you’re seeing in manufacturing right now. We are still going to have problems, they are just going to shift.”