“Efforts to stockpile” input materials to counter price increases and shortages. But finished goods inventories continued to fall.
By Wolf Richter for WOLF STREET.
The two US manufacturing PMIs released today – they’re based on the views of manufacturing executives about their own companies compared to what they saw in the prior month – painted a similar picture for April: raging unrelenting inflation, supply constraints, and strong demand.
And stockpiling of pre-production materials they could get reached survey highs to counteract price increases and shortages — a typical inflationary reaction, part of the inflationary mindset, that ends up making inflation and shortages even worse.
The S&P Global US Manufacturing PMI for April.
Amid strong growth in demand and expansion in production, Manufacturers reported that inflation in April “accelerated” and inflationary pressures showed “no signs of relenting,” amid “sharper increases in cost burdens and selling prices,” and continued shortages from suppliers with lead times from suppliers lengthening further, as suppliers struggle with “severe material and capacity shortages,” according to the S&P Global US Manufacturing PMI today (formerly the Markit PMI).
“Demand from consumers and businesses is proving encouragingly robust despite severe inflationary pressures, which intensified further during April,” the PMI report said.
“Both input cost and selling price inflation surged higher, the latter accelerating to a near-record rate, as firms faced rising energy prices, ongoing supplier-driven price hikes amid strained supply chains, and rising wage costs,” the PMI report said.
“Higher cost burdens were attributed to greater material and supplier prices, notably increased transportation, fuel and metals expenses,” the report said.
“Firms continued to pass higher material and staff costs on to clients in April, as the rate of charge inflation accelerated. The increase in selling prices was the fastest since last October.
And stockpiling of input materials to counteract price increases and shortages: “In line with a further upturn in new orders, firms raised their input buying at a sharp pace. Many companies stated that higher purchasing activity was linked to efforts to stockpile inputs amid price increases and material shortages,” the report said.
“As a result, pre-production inventories expanded at the steepest rate on record,” the report said. But stocks of finished goods “continued to contract.”
The ISM Manufacturing Report on Business for April.
“The U.S. manufacturing sector remains in a demand-driven, supply chain-constrained environment,” with five of the six biggest manufacturing industries – machinery; computer & electronics; food & beverage; transportation equipment; and chemical products – registering moderate-to-strong growth in April, the ISM Manufacturing Report on Business said today.
“In April, progress slowed in solving labor shortage problems at all tiers of the supply chain. Panelists reported higher rates of quits compared to previous months, with fewer panelists reporting improvement in meeting head-count targets,” the report said.
“Panelists continue to note supply chain and pricing issues as their biggest concerns,” the report said.
Prices expanded further in April, at a slightly slower rate than in March, but surcharges increased further, the report said.
“Inputs – expressed as supplier deliveries, inventories, and imports – continued to constrain production expansion,” as supplier deliveries “slowed at a faster rate in April.”
Here’s what ISM respondents said about their own firms:
Chemical Products manufacturer: “Tier-2 supplier shutdowns in Shanghai are causing a ripple effect for our suppliers in other parts of China. Long delays at ports, including in the U.S., are still providing supply challenges. Inflation is out of control. Fuel costs, and therefore freight costs, are leading the upward cycle. At some point, the economy must give way; it will be tough to have real growth with such pressure on costs. Despite the issues and poor outlook, business remains brisk.”
Transportation Equipment manufacturer: “Continued strong demand with improvements in the supply chain. Delays still exist, but supply issues are slowly improving. Cost increases in multiple categories.”
Machinery manufacturer: “New order entries are still very strong. Unfortunately, logistics issues have not yet improved, so lead times remain extended.”
Fabricated Metal Products manufacturer: “Due to electronic component supply chain issues, production output has been lower than normal. Backlog is growing due to the supply chain issues. New order sales are steady, except international orders are lower.”
Electrical Equipment, Appliances & Components: “Business is strong. Backlog continues to grow due to new orders and inconsistent supply chain conditions. Shortages of components are the main factor limiting our production.”
Miscellaneous Manufacturing: “The shutdowns in China due to a new COVID-19 wave are causing supply concerns for late second quarter and early third quarter. We have extended lead times to customers and are ordering product from China to cover demand through Q4 and early 1Q 2023.”
Nonmetallic Mineral Products: “Overall, improvements in supply chain are occurring on larger scale items, but we see suppliers that sell us low-volume items struggling in some cases with getting feed stocks and raw materials they need. Freight continues to plague things as well.”
Plastics & Rubber Products: “Business is still very robust. Material price increases continue to be passed on (to customers) based on costs of raw materials, logistics and labor to produce products.”
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