US manufacturing slows further; factory workers quit

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An employee works on an assembly line at the electric vehicle factory of startup Rivian Automotive in Normal, Illinois, U.S., April 11, 2022. Picture taken April 11, 2022. REUTERS/Kamil Krzaczynski

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  • ISM manufacturing index drops to 55.4 in March
  • Manufacturers report rise in workers quitting
  • Mixed signals on supply chains; prices are slowly rising

WASHINGTON, May 2 (Reuters) – U.S. factory activity grew at its slowest pace in nearly two years in April amid rising numbers of workers leaving their jobs, and manufacturers are increasingly more worried about supply over the summer due to new COVID-19 shutdowns in China.

Monday’s Institute for Supply Management (ISM) survey described manufacturing as remaining “in a demand-driven, supply chain-constrained environment.”

Timothy Fiore, chairman of the ISM’s Manufacturing Business Survey Committee, said new overseas coronavirus outbreaks are “creating a short-term headwind for the U.S. manufacturing community,” noting that some manufacturers are s worried “about their Asian partners’ ability to deliver reliably during the summer months”.

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The ISM index of domestic factory activity fell to 55.4 last month, the lowest since July 2020, from 57.1 in March. A reading above 50 indicates an expansion in manufacturing, which accounts for 12% of the US economy.

Economists polled by Reuters had expected the index to rise to 57.6. The second consecutive monthly decline in the index also reflects the rotation of spending towards services such as travel, restaurants and leisure. Government data on Friday showed consumer spending on services rose the most in eight months in March, while spending on durable manufactured goods fell for a second consecutive month.

Five of the six largest manufacturing industries—machinery, computer and electronic products, food, transportation equipment and chemicals—recorded moderate to strong growth. Manufacturers offered a mixed assessment of supply chains.

Chemical makers reported that supplier shutdowns in Shanghai and long delays at ports, including in the United States, “still pose supply challenges.” In the food industry, supply chains have been described as “always constrained”.

But manufacturers of transport equipment noted “improvements in the supply chain”. Manufacturers of non-metallic mineral products said “improvements in the supply chain are happening on larger-scale items.”

The forward-looking new orders sub-index of the ISM survey fell to 53.5 from 53.8 in March. Spending on goods jumped as COVID-19 restricted movement. With extremely low customer inventory for more than 60 months, manufacturing is unlikely to stagnate.

The survey measure of supplier deliveries rose to 67.2 from 65.4 in March. A reading above 50% indicates slower deliveries to factories. The tightening of supply chains has been exacerbated by Russia’s war on Ukraine, which has driven up the prices of oil and other commodities. The lockdowns in China aren’t helping either.

The order book survey gauge fell to 56 from 60.0 in March. This is the second consecutive monthly decline. There was some encouraging news on inflation. A measure of prices paid by manufacturers fell to a reading of 84.6 from 87.1 in March. This confirms the view that headline inflation has peaked or is about to peak.

The Federal Reserve is expected to raise interest rates by half a percentage point on Wednesday. The Fed raised its key rate by 25 basis points in March and is expected to start reducing its assets soon.

There were fewer workers in the factories last month. The survey’s factory employment measure fell to 50.9 from 56.3 in March. Manufacturers generally reported higher quit rates compared to previous months, and fewer said there had been improvement in meeting headcount goals. Just over a third expressed difficulty filling vacancies, up from 28% in March.

There were nearly 11.3 million record job openings at the end of February.

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Reporting by Lucia Mutikani Editing by Chizu Nomiyama

Our standards: The Thomson Reuters Trust Principles.

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