According to the Institute for Supply Management (ISM) survey released on September 1st, manufacturers were still struggling with supply issues, while firm orders drove the production growth in August. Businesses have faced the serious problem of raw material supplies due to COVID-19 restrictions, mainly in Southeast Asia and China’s congested ports. Moreover, this difficulty might halt the economic revival when customers’ demands increase sharply.

Promising Figures of Production

The ISM index rose from 59.5 in July to 59.9 in August. The index measures the percentage of companies registering growth, so a figure above 50 indicates expansion in the US manufacturing activity, accounting for 11.9% of the US economy. Despite the global semiconductor shortage, electronic and chemical products and transportation equipment production still keep up the great momentum.

After the two-month decline, the ISM survey’s new orders sub-index rebounded to 66.7. The rebound was driven by 14 out of the 18 manufacturing industries having demand growth in the near future.

The ISM Manufacturing index released on October 1st showed a figure of 61.1, while supply chain disruption, delays, and shortages are feeding into the inflation figures. The prices paid by manufacturers rose to 81.2 from an eight-month low of 79.4 in August. Due to inflationary pressures, the Fed had to raise its inflation projections for the year from an estimate of 3% back in June to 3.7%. However, its inflation target is 2%.

Inflation Can Ruin the Party

The Fed prefers to use the core personal consumption expenditures price index for inflation, excluding food and energy costs. In September, it rose 0.3%, compared to 3.6% a year ago, and this inflation figure is the highest since May 1991, putting a strong pressure on the Fed to react.

The possibility of high inflation is worrying businesses and the government, not to mention the supply chain crisis affecting the US manufacturing activity. Members of Congress are concerned that the stimulus packages they passed to revive the economy may have gone too far. Those concerns have put a damper on President Biden’s spending plans on infrastructure and social programs.

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