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Home / Backlog of Orders Index Grows To All-Time High

Backlog of Orders Index Grows To All-Time High

The manufacturing economy continued its recovery in March, according to Institute for Supply Management’s March 2021 ‘Manufacturing ISM Report On Business.’ Backlogs are growing, as are raw materials inventories and exports and imports.

The March Manufacturing PMI registered 64.7 percent, an increase of 3.9 percentage points from the February reading of 60.8 percent, incidcating expansion in the overall economy for the 10th month in a row after contraction in April.
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Economic activity in the manufacturing sector grew in March, with the overall economy notching a 10th consecutive month of growth, say the nation’s supply executives in the latest Manufacturing ISM Report On Business. The report was issued today by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management (ISM) Manufacturing Business Survey Committee:

“The March Manufacturing PMI registered 64.7 percent, an increase of 3.9 percentage points from the February reading of 60.8 percent. This figure indicates expansion in the overall economy for the 10th month in a row after contraction in April.

  • The New Orders Index registered 68 percent, up 3.2 percentage points from the February reading of 64.8 percent.
  • The Production Index registered 68.1 percent, an increase of 4.9 percentage points compared to the February reading of 63.2 percent.
  • The Backlog of Orders Index registered 67.5 percent, 3.5 percentage points above the February reading of 64 percent.
  • The Employment Index registered 59.6 percent, 5.2 percentage points higher than the February reading of 54.4 percent.
  • The Supplier Deliveries Index registered 76.6 percent, up 4.6 percentage points from the February figure of 72 percent.
  • The Inventories Index registered 50.8 percent, 1.1 percentage points higher than the February reading of 49.7 percent.
  • The Prices Index registered 85.6 percent, down 0.4 percentage point compared to the February reading of 86 percent.
  • The New Export Orders Index registered 54.5 percent, a decrease of 2.7 percentage points compared to the February reading of 57.2 percent.
  • The Imports Index registered 56.7 percent, a 0.6-percentage point increase from the February reading of 56.1 percent.

“The manufacturing economy continued its recovery in March,” Fiore continued. “However, Survey Committee Members 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. Extended lead times, wide-scale shortages of critical basic materials, rising commodities prices and difficulties in transporting products are affecting all segments of the manufacturing economy. Worker absenteeism, short-term shutdowns due to part shortages, and difficulties in filling open positions continue to be issues that limit manufacturing-growth potential.

“Optimistic panel sentiment increased, with eight positive comments for every cautious comment, compared to a 5-to-1 ratio in February. Demand expanded, with the (1) New Orders Index growing at a strong level, supported by the New Export Orders Index continuing to expand, (2) Customers’ Inventories Index at an all-time low and (3) Backlog of Orders Index growing to an all-time high. Consumption (measured by the Production and Employment indexes) contributed positively (a combined 10.1-percentage point increase) to the Manufacturing PMI® calculation. All top six industries reported moderate to strong expansion.

“The Employment Index expanded for the fourth straight month, but panelists continue to note significant difficulties in attracting and retaining labor at their companies’ and suppliers’ facilities. Inputs — expressed as supplier deliveries, inventories, and imports — continued to support input-driven constraints to production expansion, at higher rates compared to February. Inputs positively contributed to the PMI® calculation, by a combined 5.7 percentage points. The importation of items marginally slowed in the period, driven by port backlogs. The Prices Index expanded for the 10th consecutive month, indicating continued supplier pricing power and scarcity of supply chain goods.

“All of the six biggest manufacturing industries — computer & electronic products; fabricated metal products; food, beverage & tobacco products; transportation equipment; chemical products; and petroleum & coal products, in that order — registered strong growth in March.

“Manufacturing performed well for the 10th straight month, with demand, consumption and inputs registering strong growth compared to February. Labor-market difficulties at panelists’ companies and their suppliers persist. End-user lead times (for refilling customers’ inventories) are extending due to very high demand and output restrictions as supply chains continue to recover from COVID-19 impacts,” said Fiore.

Of the 18 manufacturing industries, 17 reported growth in March, in the following order: Textile Mills; Electrical Equipment, Appliances & Components; Machinery; Computer & Electronic Products; Apparel, Leather & Allied Products; Furniture & Related Products; Fabricated Metal Products; Food, Beverage & Tobacco Products; Primary Metals; Plastics & Rubber Products; Paper Products; Transportation Equipment; Chemical Products; Nonmetallic Mineral Products; Miscellaneous Manufacturing; Printing & Related Support Activities; and Petroleum & Coal Products. No industries reported contraction in March.

What Respondents Are Saying

“Late-winter storms in unexpected [areas] of the U.S. had our organization exercising business-continuity plans on a much more aggressive scale than anticipated. While the storms slowed our supply chain down, we did what we could to meet orders, even though few were short. We feel that in the coming month, we will be able to make up the misses as well as continue strong deliveries in the next month. As consumer confidence grows and the academia market reopens globally, we do expect orders to increase.” (Computer & Electronic Products)

“Demand remains strong. Significant supply impacts on raw materials due to the Texas freeze. All major raw-material and suppliers on force majeure.” (Chemical Products) “Business conditions are positive for our industry and company. The constraints are mainly related to parts availability (imports, supply chain congestion). Manpower is also a constraint; hiring new members is a challenge.” (Transportation Equipment)

“Winter Storm Uri has made daily life in supply chain quite a challenge. Everything from plastic substrates to adhesives have been significantly impacted by the production interruptions.” (Food, Beverage & Tobacco Products)

“The spring and summer months look great for the national oil markets.” (Petroleum & Coal Products)

“A lack of qualified machine and fabrication shop talent makes it difficult to keep up with production demands when there is no backup (second string). Qualified new hires are an ongoing challenge. We have had to provide better compensation to keep qualified talent. Raw-material prices are up 50 percent to 60 percent over the last six months, which results in increased prices to our customers and a disincentive to build inventory.” (Fabricated Metal Products)

“Widespread supply chain issues. Suppliers are struggling to manage demand and capacity in the face of chronic logistics and labor issues. No end in sight.” (Machinery)

“Business is even stronger for us this year through the third quarter, and we expect a very healthy growth of our manufacturing sales.” (Electrical Equipment, Appliances & Components)

“Business bottomed out in February; we are expecting steady improvement through the end of the year. Inflation and material availability, along with logistics, are major concerns.” (Furniture & Related Products)

“Tremendous stress on the supply chain since the winter storm in Texas. Chemicals are on allocations or unavailable. Resin is on allocation and unavailable.” (Plastics & Rubber Products)

Read full story here.

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