Growth in the US factory sector backed away from a 37-year high last month, as manufacturers grappled to meet strong demand amid parts shortages and rising commodity prices.
The Institute for Supply Management on Monday said its index measuring manufacturing activity fell to 60.7 from a reading of 64.7 in March, which marked the strongest rate of growth since December 1983.
Economists were looking for growth to accelerate in April, estimating that the ISM index would rise to 65.
A shortage of semiconductors and other parts has wreaked havoc on supply chains, throwing a wrench into manufacturers’ ability to meet demand as vaccinations and a decline in coronavirus cases fuel a rebound in the US economy.
Factories have also faced an increase in prices for a range of materials. The ISM survey’s index tracking prices paid by manufacturers jumped four points to 89.6, its highest reading since July 2008.
Timothy Fiore, chair of the ISM manufacturing business survey committee, said members of the group “reported that their companies and suppliers continue to struggle to meet increasing rates of demand due to coronavirus (Covid-19) impacts limiting availability of parts and materials”.
“Recent record-long lead times, wide-scale shortages of critical basic materials, rising commodities prices and difficulties in transporting products are continuing to affect all segments of the manufacturing economy,” he said.
Temporary production shutdowns because of parts shortages, worker absenteeism and challenges in filling open positions have also limited growth potential in the sector, according to Fiore.
However, business optimism improved during the month, as demand remained elevated, hiring rose for a fifth straight month and order backlogs continued to grow at record-high levels.
Analysts at Oxford Economics said the report’s “underlying details remained broadly encouraging”.
“Manufacturing remains resilient, and factories won’t run out of gas once demand shifts more towards services and away from goods. Looking ahead, inventory replenishment, rising capital investment, fiscal stimulus, and reviving global growth will underpin buoyant manufacturing activity,” they added.