U.S. manufacturing grows at fastest pace since '04

Economic activity at the nation's manufacturers in March grew at the fastest monthly clip since July 2004, according to a closely watched monthly index released today. But the rapid growth was accompanied by two potentially vexing issues for the supply chain: longer delivery lead times and higher prices paid for products.

The report from the Institute of Supply Management (ISM) found that manufacturing activity, as measured by the Purchasing Managers' Index (PMI), grew for the eighth straight month to achieve the fastest rate of expansion in nearly six years. The overall economy expanded in March for the 11th consecutive month, ISM said.

Both new orders and production exceeded the 60 percent threshold, indicating that the economy ended the first quarter with "significant momentum going forward," said ISM Chairman Norbert J. Ore in a statement. A reading of 50 or better indicates an expanding manufacturing sector.

In addition, components that track employment, manufacturer inventories, order backlogs, and import and export activity all reported month-over-month increases, ISM said. The biggest sequential gains were in manufacturer inventories—which increased 8 percent in March after nearly four consecutive years of contraction—and prices paid for products by the 17 industries that report in the index. The "prices paid" component also leapt by 8 percent over February.

Supplier deliveries, while showing an increase over February, indicated a slowing pace of growth. This may signify a shortage of available product, as well as a problem with order lead times. The survey's respondents also said that the inventory levels held by their customers in March were too low, ISM said.

As is customary, the monthly report extracts comments from selected respondents and incorporates them into its announcement. A respondent from the "computer and electronic products industry," while speaking about conditions in his industry, voiced what appears to be an increasingly common complaint: "There is a serious shortage of basic electronic components, and lead times are becoming a problem," the respondent said. "We are also seeing dramatic price increases."