Growth in U.S. manufacturing slowed slightly in June, as supply chain problems persist and businesses say they are still struggling to find workers to keep up with demand.
The Institute for Supply Management, a trade group of purchasing managers, said Thursday that its index of manufacturing activity ticked down in June to a reading of 60.6 from 61.2 in May.
Any reading above 50 indicates manufacturing is expanding. June was the 13th consecutive month that manufacturing has grown after contracting in April 2020, when coronavirus fears triggered business shutdowns across the country.
Production, which increased to a reading of 60.8 last month, might have seen an even stronger bump if not for raw materials shortages and labor problems, including absenteeism and turnover.
The employment index dipped into contraction territory, falling to 49.9 in June from 50.9 in May. An overwhelming majority of panelists surveyed said their companies are hiring or attempting to hire, with more than a third of them having difficulty filling positions. Panelists said employee turnover attributed to "wage dynamics" was a problem -- in other words, workers leaving jobs for better pay.
Not coincidentally on Thursday, the Labor Department reported that the number of Americans applying for unemployment aid fell again last week to the lowest level since the pandemic struck last year. The rollout of vaccines has sharply reduced new covid-19 cases, giving consumers the confidence to get out and spend money.
That pent-up spending has created an almost overnight need for workers, and employers have been struggling to fill jobs and keep up with demand.
"Lack of labor is killing us," said one respondent. "Manpower has been a concern," another said.
On top of demand, ongoing supply chain problems and materials shortages are driving prices up to levels not seen in more than 40 years.
"Continued high backlog levels, too low customers' inventories and record raw-materials lead times are being reported," Timothy Fiore, chairman of the institute's manufacturing business survey committee, said in a statement. "Labor challenges across the entire value chain continue to be the major obstacles to increasing growth."
The index of prices paid for raw materials increased to 92.1, a level not seen since the 1979 Iranian revolution and oil crisis. Logistics challenges, elevated commodities prices and shortages of various supplies continue to pressure manufacturers.
Shortages of semiconductors have been particularly disruptive to the auto industry, where production earlier this year was restrained because of the lack of supply.
"Virtually all basic and intermediate manufacturing materials are experiencing price increases as a result of product scarcity and the dynamics of supply and demand, with an increasing number of panelists reporting higher prices compared to May," Fiore said.
The government's monthly jobs report today is projected to show manufacturing payrolls increased by 25,000 in June, which would be the most in three months.
Information for this article was contributed by Vince Golle of Bloomberg News (WPNS).