Manufacturing output rose more than expected in May

From “Retail Sales, Factory Data Show Growing Pains for U.S. Recovery” (Bloomberg):

U.S. manufacturing output rose more than expected in May

The surge in demand has manufacturers struggling to keep pace. Factory output climbed 0.9% in May after a 0.1% April decline, the Fed’s report on Tuesday showed. The gain in factory output included a strong rebound in motor vehicle production and strength in machinery and chemicals.

Steady business investment, resilient consumer spending and a more recent pickup in export demand are all helping to fuel orders growth. When paired with a backdrop of lean inventories, factory output is poised to pick up steam in the months ahead.

Even so, headwinds remain. Producers continue to grapple with shipping delays, unfilled job openings and supply shortages like semiconductors.

The New York Fed’s index of manufacturing in the state showed more moderate growth in June. A gauge of delivery times climbed to a record high, while more factories reported shrinking inventories.

ICIS of Houston forecasts tight resin markets through the Q4

From “PE, PP, PET markets battle through 2021” (Plastics News):

Analysts with research firm ICIS of Houston took a look at factors impacting PE, PP and PET during a recent online webinar.

PE and PP both have seen major price increases since early 2020 as a result of strong demand and supply constraints. Brian Pruett, senior vice president with the Chemical Data Inc. unit of ICIS, said the PE market might see one or two additional increases this year before the market potentially enters into a price correction.

Regional PP prices could be up again in June, Pruett said, since PGP prices aren’t expected to decline. The lack of shipping container space, as well as higher shipping costs and longer lead times, have made it difficult for foreign PP to enter the domestic market and compete with higher-priced domestic resin.

ICIS Global Editor Joseph Chang said that resin markets could be tight through the fourth quarter, and that end markets could be affected by an increase in decarbonization, with many companies trying to reach net zero by 2050.

Three potential explanations for the puzzling labor shortages

From “Why are American workers becoming harder to find?” (The Economist):

There are three potential explanations for the puzzling shortages: over-generous benefits; fearful workers; and a reallocation of labour between industries. Start with America’s huge fiscal handouts. The latest stimulus cheques, posted in the spring, were for up to $1,400 per person. Seemingly every American knows of a neighbour’s cousin’s boyfriend who received a “stimmy” cheque, then quit his job in order to sit on the sofa. A federal supplement to unemployment insurance (ui), currently $300 a week, ensures that four in ten unemployed people earn more from benefits than they did in their previous job. Economic research has long concluded that more generous benefits blunt incentives to look for work.

Yet this relationship appears to have weakened during the pandemic. The fact that increases in ui payments have been time-limited may make workers reluctant to turn down a job with longer-lasting rewards. In the early part of the pandemic the ui supplement was even more generous, at $600, but its expiry in the summer had “little effect on overall employment”, according to a paper published in February by Arindrajit Dube of the University of Massachusetts-Amherst. Likewise, in the areas where the current $300 is a relatively larger boost to income, employment growth has not weakened since January, when that uplift was introduced.

This suggests that the second factor, fear, may be important in explaining America’s shortage of staff. Nearly 4m people are not looking for work “because of the coronavirus pandemic”, according to official data. And consider which industries are experiencing the most acute worker shortages. Jobs in health care, recreation and hospitality report the highest level of job openings, relative to employment. Many of these involve plenty of person-to-person contact, making their workers especially vulnerable to infection (a study from California earlier this year found that cooks were most at risk from dying of covid-19). By contrast, in industries where maintaining social distancing or being outside is often easier, labour shortages are less of an issue. The number of job openings per employee in the construction industry is lower today than it was before the pandemic.

The final reason for worker shortages relates to the extraordinary reallocation of resources under way in the economy. The headline growth in vacancies represents the rise in opportunities in some industries—say, clerks in diystores—as others decline, reflecting changing consumer demands. Analysis by The Economist of over 400 local areas also finds a wide variation in job churn across geographies: the gap between jobs growth in the most buoyant areas and that in struggling ones is twice as wide as it was before the pandemic. Workers may take time to catch up with this creative destruction. A former bartender looking for work in downtown Manhattan, for instance, may not quickly spot and secure a position as a delivery driver in farther-out Westchester.

How Are Industrial Manufacturers Embracing AI?

From SupplyChainBrain:

The KPMG study, “Thriving in an AI World,” examined AI adoption in seven industries, but this is the first year that it has addressed industrial manufacturing. And the results in that sector came as something of a surprise to those who assumed that many companies remain on the fence about investing in AI. In fact, 93% of the industrial manufacturing business leaders participating in the study said AI is “moderately to fully functional” in their organizations. That was the highest number among the seven industries surveyed by KPMG. And the same percentage of industrial manufacturing leaders said they wished their companies would even more aggressively adopt AI technology.

Why the strong numbers? Mathews speculates that it’s due to the suitability of AI as a “great enabler” of Industry 4.0 initiatives — the coming of the so-called smart factory. Neely adds that respondents might be more freely defining what constitutes AI today, applying the term to some of what they’ve already been doing in product development and automation. Study respondents offered yet another possible explanation for the rapid progress of AI, with 72% saying that COVID-19 has sped up its adoption.

Companies worldwide expect supply-chain constraints to continue for much of 2021

From Shipping Delays and Supply Shortages to Constrain Firms All Year (Bloomberg)

Companies worldwide expect supply-chain constraints resulting from logistics backlogs and the global semiconductor shortage to continue for much of this year.

In earnings calls this week, firms including TeslaSony and shoe company Crocs expressed concerns about the ability to meet demand given ongoing supply-chain bottlenecks. Some said they don’t expect the tight supply environment to be resolved until the end of the year. […]

Tesla Chief Executive Officer Elon Musk said the first quarter presented “some of the most difficult supply-chain challenges that we have ever experienced in the life“ of the company, noting the chip shortage and production challenges in China because of Covid-19 quarantine restrictions.

Meantime, Steven Madden CEO Edward Rosenfeld said freight will be the shoe company’s most significant challenge in the coming months, with ocean rates more than doubling and air freight up close to 200%. He expects port-congestion problems to continue through at least the end of the second quarter.

From Supply Lines 4/26/21 (Bloomberg):

Ship congestion outside the busiest U.S. gateway for trade with Asia eased over the past week, with the number of container vessels waiting to enter the twin ports of Los Angeles and Long Beach staying below 20 for five straight days.

Record high output at U.S. factories

From World Factories Boom as Pandemic Recovery Accelerates (Bloomberg):

Global manufacturing and services continue to recover from the pandemic, but purchasing managers in several developed economies say businesses are still straining to meet deliveries and keep costs down amid shortages.

That’s according to a roundup of Purchasing Managers’ Index data compiled by IHS Markit. Here’s a selection of data worldwide from the latest April reports.

Output at U.S. manufacturers and service providers reached a record high in April despite supply-chain disruptions that continue to hamper goods production. The IHS Markit flash composite index of purchasing managers at manufacturers and service providers increased to 62.2, the highest in data back to 2009, from 59.7 a month earlier. Suppliers’ delivery times for factories fell to the lowest level since the survey started in May 2007.

Flash Manufacturing PMI is an estimate of manufacturing for a country, based on about 85% to 90% of total Purchasing Managers’ Index (PMI) survey responses each month.

Any reading of the Flash Manufacturing PMI above 50 indicates improving conditions, while readings below 50 indicate a deteriorating economic climate.

Flash manufacturing PMI is a forward-looking estimate of a country’s manufacturing sector and is intended to provide an accurate advance indication of the final PMI data.

PP prices down, PE and others up in March 2021

From PP prices down, other commodities up in a turbulent March (Plastics News):

Polypropylene was the odd resin out in March, with North American prices falling, while prices for other commodity resins in the region saw increases. […]

PP prices fell an average of 12.5 cents per pound in March. Demand for the material remained strong across many end markets. The price decline was the result of a demand drop for propylene monomer feedstock.

Prices for all grades of PE moved up 7 cents per pound in March, after increasing by that same amount in February. Prices had increased by 5 cents in both January and December, as the market was tight even before the storm hit. North American PE prices are up a net of 39 cents since January 2020.