Consultant Insight: US manufacturing begins 2021 on an optimistic note

The new year is starting strong for the U.S. manufacturing market. According to the Institute of Supply Management’s (ISM) monthly survey, December’s Purchasing Manager’s Index (PMI) increased to 60.7 from November’s 57.5 noting continued manufacturing expansion since June 2020, when the PMI was 52.6. [caption id="attachment_69752" align="alignright" width="300"] Cathy Roberson, Cargo Facts Consulting senior consultant and Air Cargo World columnist[/caption] The ISM also noted higher transportation costs in its latest report. “Aluminum, copper, steel, petroleum-based products including plastics, transportation costs, electronic components, corrugated, temporary labor, wood and lumber products all continued to record price increases,” said Timothy Fiore, chair of the Institute for Supply Management Manufacturing Business Survey Committee. Higher prices for commodities and transportation will ultimately translate in higher prices for the end user, a concern for economists as COVID-19 continues to challenge the global economy. Indeed, subsegments of the PMI find that production and employment expanded during December to 64.8 from November’s 60.8 for production, and to 51.5 from November’s 48.4 for employment. New orders also picked up month-to-month from 65.1 in November to 67.9 in December. New export orders are still expanding, but there may be a need to monitor the metric in the coming months, particularly as U.S. Department of Labor data reported this week shows the trade deficit in November widened by 8.0% month over month to $68.1 billion. Behind the latest deficit data was faster growth in imports than exports, with imports of goods and services up by 2.9% to $252.3 billion. Exports of goods and services were also up, but only by 1.2% to $184.2 billion. U.S. imports will likely remain high for the next couple of months, according to the National Retail Federation and Hackett Associates’ monthly Port Tracker. Total ocean freight TEUs for January are forecasted to increase 2.4% from January 2020, and February TEUs are expected to increase 2.6% year-over-year from February 2020. Meanwhile, COVID-19 continues to cast a shadow on the manufacturing market as noted by commentary from ISM survey: Food, beverage and tobacco products: “COVID-19 is affecting us more strongly now than back in March. Vendors/service suppliers unable to maintain levels of service due to employee shortages. Logistic issues also hurting us due to coronavirus-related problems.” Transportation equipment: “COVID-19 outbreaks are causing supply chain issues for Tier 1 and Tier 2 suppliers. More work needs to ensure suppliers keep us in the loop with any problem in their supply chain. But end-customer demand for products is keeping production and future outlook positive.” Electrical equipment, appliances and components: “Business is stronger than expected, with higher demand for many products. Volatility continues due to the very persistent pandemic and associated risks.” The World Bank reported that the global economy contracted 4.3% in 2020. For 2021, the World Bank expects a 4% expansion in the global economy, “assuming an initial COVID-19 vaccine rollout becomes widespread throughout the year,” according to a press release. However, recovery from 2020 will likely be subdued “unless policymakers move decisively to tame the pandemic and implement investment-enhancing reforms,” the organization said. Economic risks will permeate supply chains this year. Shippers will need to be aware of the risks in order to mitigate to ensure supply chains operate as agile as possible.

Consultant Insight: US manufacturing begins 2021 on an optimistic note

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