Jun 3, 2021 - Economy

Manufacturing grows in May, spurred by services

animated traffic light gif with three green lights blinking in the shape of a gear

llustration: Sarah Grillo/Axios

Manufacturing growth isn't slowing down.

Why it matters: Reopening means people are spending more on going out, which means service businesses need more goods to accommodate — even as supply chains remain backed up and labor shortages persist.

Driving the news: Manufacturing activity in May rose half a percentage point from April to 61.2%, according to the Manufacturing Purchasing Managers Index (PMI) published Monday.

  • The monthly supply chain survey showed that new orders continue to grow, while order backlogs, empty shelves and production lead times remain at record levels.
  • The Institute for Supply Management (ISM) reported Thursday that business activities for services reached another all-time high in May.

What they're saying: "People are spending more money on services, but that doesn’t take money away from manufacturing," Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee tells Axios.

  • There will be at least a six-month overlap where both the services and manufacturing sectors experience growth — well into the first quarter of next year, and likely through the first half of next year, Fiore says.

What to watch: High manufacturing prices and the worker shortage should start to ease soon.

  • Manufacturing prices are "way outside" the normal range, Fiore says, but he thinks they are close to or at the peak.
  • That's because he expects the labor shortage to end as states end supplemental unemployment benefits in June and September, and parents can send kids to day camp.
  • At every level of the supply chain, "it’s a labor, labor, labor, issue," says Fiore.

The bottom line: Manufacturers are feeling good right now.

  • Optimism on the panel is now more than threefold compared to April — 36 positive comments for every cautious one, versus an 11-to-1 ratio.
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