Growth Hindered by “Supply Chain Disruptions, Capacity Constraints, Inflation, Logistical Challenges, Labor Shortages”

by Wolf Richter, Wolf Street:

Here’s what executives in those industries said.

Growth in February at companies outside the manufacturing sector was held down “by supply chain disruptions, capacity constraints, inflation, logistical challenges, and labor shortages,” the ISM Services PMI reported today.

The ISM Services PMI is based on a panel of business executives (the “respondents”) who report how their own companies did that month compared to the prior month. The panel includes executives of companies of all sizes across the vast array on industries other than manufacturing, ranging from agriculture and construction to professional, scientific & technical services (the industries are listed below).


“These conditions have affected the ability of panelists’ businesses to meet demand, leading to a cooling in business activity and economic growth,” said the ISM report.

The report indicated that these industries overall grew at a pace that was above average established in the decade 2010-2019, but slower than the blistering record pace that started in March 2021.

And this is now everywhere: The inability to meet demand – and even to accept new orders – due to “supply chain disruptions, capacity constraints, inflation, logistical challenges, and labor shortages.”  And they put a damper on business and economic growth.

Here are some of the things the executives said:

Executive in Professional, Scientific & Technical Services: “Staffing shortages, supply chain disruptions and rising inflation continue to impact the world economy. Companies are struggling to hire direct employees and non-employee labor because wages continue to increase for both. The Great Resignation is real: Employees, contractors and consultants continue to quit their jobs and engagements for opportunities that pay more and have more flexible work options. Millions of light industrial jobs remain open in the U.S., with limited interest from job seekers. Severe labor shortages are expected well into 2022. Corporations need to increase wages and salaries to attract talent and get work done. Faster wage growth is expected to lead to increased inflation.”

Executive in Construction: “We are getting price increases with no notice. For example, our engineered wood products supplier gave us a 10 percent to 20 percent (based on SKU) increase, effective immediately. We are also struggling to get materials. Suppliers cite poor employee attendance, elevated employee turnover, and positions open longer than normal as they struggle to fill them.”

Executive in Accommodation & Food Services: “Raw material increases, labor shortages, wage increases and transportation issues are still the primary issues affecting our operations and pricing.”

Executive in Agriculture, Forestry, Fishing & Hunting: “Supply chain challenges continue to result in lower inventories of products and higher costs. The challenges are at the highest point since COVID-19 began.”

Executive in Arts, Entertainment & Recreation: “We are projecting 2022 to be busier than 2021. Our business volume should begin to increase significantly in March.”

Executive in Educational Services: “Inflation is contributing to budget constraints, supply chain restraints and labor shortages.”

Executive in Finance & Insurance: “Employee turnover within our company and with our suppliers is causing delays in decisions and orders.”

Executive in Health Care & Social Assistance: “As the COVID-19 surge starts to loosen its grip, we are planning to resume elective surgeries soon. Demand is still high, as these procedures were delayed while the surge was occurring.”

Executive in Utilities: “Appear to be on the upswing from COVID-19 from an absenteeism standpoint. Still dealing with long lead times for wire, polyvinyl chloride (PVC), steel, transformers and meters. Winter weather has not had an impact on productivity levels.”

Here are the 18 categories in the ISM Services PMI. They make up a large portion of the US economy:

  • Agriculture, Forestry, Fishing & Hunting;
  • Mining;
  • Utilities;
  • Construction;
  • Wholesale Trade;
  • Retail Trade;
  • Transportation & Warehousing;
  • Information;
  • Finance & Insurance;
  • Real Estate, Rental & Leasing;
  • Professional, Scientific & Technical Services;
  • Management of Companies & Support Services;
  • Educational Services;
  • Health Care & Social Assistance;
  • Arts, Entertainment & Recreation;
  • Accommodation & Food Services;
  • Public Administration;
  • Other Services (such as Equipment & Machinery Repairing, Personal Care Services, Dating Services…)

Todd Miller, president of Isaiah Industries, an Ohio-based manufacturer of metal roofing shingles for residences and commercial buildings, reported on WOLF STREET about the challenges his company is facing in terms of shortages and supply-chain issues, which he summarized:

“The end result is we’re doing our best, and I believe our suppliers are doing their best, but the system has been stretched beyond its limits. If consumer demand for our products remains high, and we expect that it will, I don’t see how we will be able to provide what customers want this year.”

“At the same time, rapidly spiraling raw material costs are pinching margins. We can’t put through price increases as quickly as we’re seeing them. And that’s not just metals and coatings but also packaging, transportation, and, well, pretty much everything.”

“It really isn’t supposed to work this way! The system is broken,” he said. And there are a lot of people in business that would likely agree with that.

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