WASHINGTON: A key gauge of the manufacturing industry in the United States dropped to a level not seen since September 2020 in March as spiking energy prices and supply challenges hampered factories.
The Institute for Supply Management said its manufacturing index fell to 57.1 percent in March, a far bigger drop than analysts had expected but still above the 50-percent threshold indicating growth.
Fueling the decline was a nearly eight-point contraction in new orders to 53.8 percent, while production fell four percentage points to 54.5 percent and prices saw a whopping 11.6 point increase to 87.1 percent.
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“The US manufacturing sector remains in a demand-driven, supply chain-constrained environment,” the survey’s chair Timothy Fiore said.
Although firms remain optimistic about future demand and managed to cut down on employee turnover last month, Fiore said they also moved quickly to pass on costs after Russia’s invasion of Ukraine caused energy prices to spike.
“Suppliers are not waiting to experience the full impacts of price increases before negotiating with their customers,” he said.
The energy price surge was the latest supply woe facing manufacturers, who have battled shortages of labor and components, shipping delays and high inflation as the US economy has recovered from the pandemic.
“Business continues to be strong, with incoming sales higher but still combating labor and material issues like availability and inflation,” a furniture and related products company told the survey.
A more positive trend was seen in employment, which rose 3.4 percentage points to 56.3 percent, while supplier delivery times decreased slightly and order backlogs decreased five percentage points but remained in expansion territory.
“Even as the manufacturing sector continues to grow, bottlenecks and shortages — which could intensify in the near term — remain headwinds for the sector,” Rubeela Farooqi of High Frequency Economics warned in an analysis.