What does the continuation of economic growth mean for the supply chain?

By William Newman, SAP industry executive advisor for automotive

I had the opportunity to review the Institute for Supply Management Manufacturing Report, which I read as a healthy dose of positive news and confirmation that disruptions from the pandemic aren’t going away any time soon.

COVID continues to cause significant supply chain impacts in several industries, such as retail, technology and manufacturing. Though the economy’s growth has remained steady and even grew 0.4% higher than July, shutdowns, labor shortages, and overseas supply chain problems are continuing to limit manufacturing-growth potential. And as the holiday season approaches, the issue of demand will only continue to be exacerbated.

In the report, the Supplier Deliveries Index was down 3% from July, indicating that suppliers are continuing to experience difficulties caused by a lack of labor and sustained levels of increasing demand. Further, price increases for raw materials such as plastics, rubber and fabricated and primary metals continue to escalate due to product scarcity. While the focus in the media has been around semiconductor chips, the impact crosses many components including foam, rooflines, battery and battery casings as well as exteriors in automotive.

Meanwhile, ISM’s Employment Index registered 49% in August, a near 4% decrease from July. This is, in part, due to concerns among the unemployed workforce about contracting COVID-19, employers' vaccine mandates, and the uncertainty of childcare as the virus continues to cause unplanned school closures where there are outbreaks.

However, both manufacturing and non-manufacturing remain well above 50%—a positive glimpse as we head into Q4. Top manufacturing industries such as electronics, metal and chemical products, along with food and beverage, reported moderate to strong growth, indicating that there’s positive sector expansion. And with the expiration of extended Unemployment Insurance Agency benefits, the general employment rate should see an uptick.

Looking ahead into 2022, if vaccination rates continue to improve and non-manufacturing service hiring quickens, employment numbers should return to 2019 pre-pandemic levels. However, the likeliness of the supply chain bouncing back remains slim, as component shortages, high costs in materials, and transportation delays are predicted to persist into 2023.