US factory sees surprise slowdown as China lockdowns bite

WASHINGTON – US factory activity last month dropped to its lowest level since July 2020 as supply chain snarls intensified amid a new wave of pandemic lockdowns in China, an industry survey said Monday.

The Institute for Supply Management said its manufacturing index dropped almost two percentage points to 55.4 percent in April, against expectations for a modest increase but still above the 50-percent threshold indicating expansion.

The culprit was a renewed flare-up in the supply chain woes that have dogged American factories throughout their recovery from the COVI downturn, and in particular China’s aggressive moves to stop renewed outbreaks in Shanghai and other major cities.

“Overseas partners are experiencing COVID
impacts, creating a near-term headwind for the US manufacturing community,” the survey’s chair Timothy Fiore said.

“Fifteen percent of panelists’ general comments expressed concern about their Asian partners’ ability to deliver reliably in the summer months, up from five percent in March.”

In a comment to the survey, a chemical products company pointed to the business closures in Shanghai as complicating their own operations.

“Long delays at ports, including in the US, are still providing supply challenges. Inflation is out of control. Fuel costs, and therefore freight costs, are leading the upward cycle,” the commenter said.

“At some point, the economy must give way; it will be tough to have real growth with such pressure on costs,” the respondent said, adding business nonetheless was “brisk.”

New orders and production both dropped last month, while the employment index fell more than five percentage points to 50.9 percent, bringing it closer to contraction territory.

Inventories dropped nearly four points to 51.6 percent, though prices decreased 2.5 percentage points but still remained at a high 84.6 percent. Order backlogs fell four points to 56 percent.

“The risk clearly is to the downside for the foreseeable future,” Ian Shepherdson of Pantheon Macroeconomics said.

“We see no real escape from China’s COVID mess until next year.”