US manufacturing growth softens as supply constraints linger

[WASHINGTON, D.C.]

US manufacturing expanded at a softer - yet still solid - pace in July as producers grappled with persistent bottlenecks and input shortages.

The Institute for Supply Management's gauge of factory activity eased for a second month to 59.5 from June's 60.6, according to data released Monday. Readings above 50 indicate expansion. The median projection in a Bloomberg survey of economists called for a July reading of 61.

Order backlogs edged up to an elevated level as a measure of production cooled, suggesting supply and shipping challenges are restraining manufacturing growth.

Timothy Fiore, chair of the ISM's manufacturing business survey committee, said in a statement: "Companies and suppliers continue to struggle to meet increasing demand levels. As we enter the third quarter, all segments of the manufacturing economy are impacted by near record-long raw-material lead times, continued shortages of critical basic materials, rising commodities prices and difficulties in transporting products."

Because of those production constraints, factories have had to draw down stockpiles to keep up with robust demand growth. In the second quarter, business equipment investment posted another solid gain and consumer spending accelerated to one of the fastest paces in decades, government figures showed last week.

The ISM's index of customer inventories slumped to a record low last month. Replacing those depleted inventories should fuel output gains in future months, but when those production constraints will ease is unclear.

The group's gauge of prices paid for raw materials cooled in July to a still-lofty 85.7 after rising in the prior month to the highest level since 1979.

A gauge of factory employment rebounded in July, showing companies had greater success hiring workers in the month. The government's monthly jobs report on Friday is projected to show manufacturing payrolls increased by 30,000 in July. Overall employment is forecast to rise by about 900,000.

Seventeen of 18 manufacturing industries reported growth last month, led by furniture, printing and apparel.

BLOOMBERG