The Gardner Business Index moved lower for a second consecutive month during May to 61.3.  In the last two months, the Index has fallen only slightly from its March high of 63.3. When taken at face value, declining month-to-month readings indicate that the industry is experiencing a slowing expansion. However, recent headline totals cannot provide the far richer story told by the individual movements of the index’s underlying components.

The Gardner Business Index for May 2021 registered 61.3.

The proportion of survey respondents reporting slowing supplier deliveries moved higher again in May, setting a high that is now nearly 20-points above the pre-COVID record of 63.3 set in mid-2018.  In five of the last six months, supplier delivery readings have issued new all-time highs. The unprecedented condition of the world’s supply chains means that a very large proportion of manufacturers are slowing production activity for lack of supplies. Further complicating production is the intensifying shortage of available labor. Gardner’s May employment reading —which measures only the level of hirings— fell for the first time in 6-months while other sources report growing numbers of unfilled job openings. This divergence suggests that while there is a strong desire on the part of manufacturers to increase their labor force, there are simply not enough available workers to fill the large and growing number of openings.

Backlog levels have risen dramatically in the year-to-date period as new orders activity outpaces production.

Production constraints resulting from slow deliveries and too few laborers are occurring at a time when demand levels continue to hover near all-time highs.  As a result, the industry is presently experiencing the longest period in which new orders activity has outpaced production since at least 2011. This sustained spread is prone to explain why backlog readings have risen since the start of the year.  Backlog readings registered all-time highs in both April and May.