Data released on Tuesday showed the ISM Manufacturing Index rose in May to 61.2, surpassing expectations. Analysts at Wells Fargo point out the changes in the various sub-components describe a Tantalean punishment for manufacturers because it’s a once-in-a-lifetime demand surge, but long wait times, supply shortages, and staffing challenges are preventing factories from ramping up production.
Key Quotes:
“The May ISM manufacturing index surprised on the upside in terms of the headline measure, but the sub-components moved in both directions. The story that emerges is one of a manufacturing sector that could be growing much faster were it not for supply-side growing pains.”
“Supplier deliveries, which in most cycles are not a massive swing factor, has been a key factor since the very first supply chain problems revealed themselves around this time last year. In today’s report, supplier deliveries in May reached the highest level since 1974.”
“Long wait times are having a predictable effect on output; the production index fell to 58.5 from 62.5. While any figure north of 50 signals expansion, the slowing in this measure has to be infuriating for factories seeing a once-in-a-lifetime demand surge but are unable to take full advantage of it for lack of parts.”
“The April payroll report showed an 18K drop in manufacturing payrolls that can mostly be attributed to massive cutbacks in the auto sector, but today’s ISM report illustrates that hiring is constrained more broadly in the manufacturing sector.”
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