US manufacturing expands at faster pace, backlogs swell

[WASHINGTON] US manufacturing expanded at a stronger-than-expected pace in August, reflecting faster orders and production growth as well as rising backlogs consistent with global supply chain challenges.

The Institute for Supply Management's gauge of factory activity rose to 59.9 from 59.5 in the prior month, according to data released on Wednesday. Readings above 50 indicate expansion.

The median projection in a Bloomberg survey of economists called for the measure to fall to 58.5.

While the highest ISM reading for bookings in three months and firmer production highlight sustained demand, the pickup in order backlogs underscores persistent bottlenecks rattling manufacturers across the globe.

In Europe, unfilled orders climbed to a record last month, according to an IHS Markit survey, while many Asian producers were constrained by Covid-19 outbreaks.

The ISM's index of backlogs rose to 68.2, matching the second-highest reading in data back to 1993, while the group's measure of employment fell to 49, the lowest since November. The gauge of new orders advanced to 66.7.

"Companies and suppliers continue to struggle at unprecedented levels to meet increasing demand," Timothy Fiore, chair of ISM's Manufacturing Business Survey Committee, said in a statement.

"All segments of the manufacturing economy are impacted by record-long raw-materials lead times, continued shortages of critical basic materials, rising commodities prices and difficulties in transporting products," he said.

Fifteen of the 18 manufacturing industries reported growth in August, led by furniture, computer and electronic products, and machinery.

Manufacturers have struggled to attract and retain qualified workers, and vacancies in the sector are near a record high. The government's monthly jobs report - out Friday - is forecast to show the US added 25,000 manufacturing jobs in August, which would be the smallest gain since a decline in April.

The report also showed the group's index of prices paid for materials eased to 79.4, the lowest since December but still well above pre-pandemic levels. Meantime, factory inventories rose to the highest since November 2018 after shrinking in the prior month.

The pickup in inventories reflected ongoing materials shortages. "Given the acute parts shortages, they're building product and leaving it aside waiting for those parts to show up," Mr Fiore said on a call with reporters. Meantime, the average lead time for materials used in the production process rose to 91 days in August, a record high.

Mr Fiore also said he expects manufacturers will have to grapple with employment and parts shortages for some time given ongoing challenges with Covid-19.

BLOOMBERG