U.S. Manufacturers Brace for Impact Following New China Lockdowns

Researched by Industrial Info Resources (Sugar Land, Texas)--Manufacturing activity in the U.S. is at its lowest level since July 2020, according to a survey by the Institute for Supply Management (ISM). The survey respondents, along with major U.S. companies, are seeing red flags amid ongoing supply-chain issues and the most recent wave of COVID-19 lockdowns in China.

The ISM's April Purchasing Managers Index (PMI), which tracks 18 industry sectors in the U.S, registered 55.4%--the lowest reading since 53.9% in July 2020, Timothy R. Fiore, chair of the ISM's Manufacturing Business Survey Committee, said in a press release.

The indexes for new orders and overall production were down 0.3 and 0.9 percentage points, respectively, from March. The inventories index registered 51.6%, down 3.9 percentage points from March's reading.

The manufacturing sector's overall economy did grow in April for the 23rd consecutive month, but "the U.S. manufacturing sector remains in a demand-driven, supply chain-constrained environment," Fiore said. "In April, progress slowed in solving labor shortage problems at all tiers of the supply chain... Panel sentiment remained strongly optimistic regarding demand, though the three positive growth comments for every cautious comment was down from March's ratio of 6-to-1."

He added, "Overseas partners are experiencing COVID-19 impacts, creating a near-term headwind for the U.S. manufacturing community. Fifteen percent of panelists' general comments expressed concern about their Asian partners' ability to deliver reliably in the summer months, up from 5% in March."

In first-quarter earnings-related conference calls, major U.S. companies sounded the alarm over ongoing supply-chain constraints and the latest COVID lockdowns in China's largest industrial hub, Shanghai. Much of the city remains locked down, according to reporting by Fox Business, although new cases are easing: the city recorded about 7,200 cases on April 30, down from a peak of 27,605 on April 13.

Apple Incorporated (NASDAQ:AAPL) (Cupertino, California) Chief Executive Officer Tim Cook said: "We see two causes of supply constraints. One is the COVID-related disruptions, and there's the industrywide silicon shortages that will continue. We've estimated the constraints to be in the range of $4 billion to $8 billion ... these constraints are primarily centered around the Shanghai corridor."

Meanwhile, Intel Corporation (NASDAQ:INTC) (Santa Clara, California) Chief Financial Officer Dave Zinsner said: "Component supply constraints continue to be a challenge with the most recent COVID lockdowns in Shanghai, further increasing supply-chain risk and contributing to inflationary pressures that are having a negative impact on [personal computer] PC [total addressable market] TAM for the year."

Another semiconductor producer, Texas Instruments Incorporated (NASDAQ:TXN) (TI) (Dallas, Texas), also is feeling an impact. Dave Pahl, vice president and head of investor relations, said: "Our assessment in early April indicated that revenue would continue to incrementally grow again in the second quarter. However, it just became clear that we were experiencing lower demand, particularly due to COVID-19 restrictions in China ... we did see that our customers' manufacturing operations were being impacted."

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