AI-related demand tests U.S. factories' paces
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A data center under construction in Vernon, California. Photo: Mario Tama/Getty Images
Output of American factories continued to expand in October, driven by surging demand for AI-related equipment that's also straining supply chains and pushing up prices, according to two new manufacturing surveys.
By the numbers: The Institute for Supply Management's manufacturing index rose 1 point, to 55.5, last month — the 10th straight month of expanding activity following a yearslong slump.
- Production accelerated at the fastest pace since November 2021.
- Even as S&P Global's manufacturing gauge dipped slightly by 1 percentage point, to 54.9, the firm says that the sector is on its best run since early 2022. Hiring accelerated to its fastest pace in more than five years.
Yes, but: Both surveys show strains from the insatiable demand for AI-related equipment, alongside higher energy costs and war-related shipping disruptions.
- S&P Global said that manufacturers' selling prices rose at the sharpest rate in four years.
- ISM's prices index last month slipped by 2.7 percentage points, to 75.2%, but continued to signal widespread increases in raw material costs.
- "With demand often exceeding supply, producers have been increasingly able to pass higher costs on to customers, notably for energy-related inputs," S&P Global chief business economist Chris Williamson said in a release.
What they're saying: "New month, same trends: Any commodity consumed by AI/data centers is in a crunch, both for supply and pricing," one manufacturer told ISM.
- A machinery manufacturer described extraordinary demand for semiconductors and defense equipment: "Lead times and prices are increasing, and some carry COVID-19 era delays — four weeks is now 50 weeks. ... We are hand to mouth."
The other side: A chemical products manufacturer said costs had risen more than 6% this year, noting that uncertain economic policy has made it "impossible to make sound long-term decisions."
The bottom line: The manufacturing resurgence is a bright spot for the U.S. economy. Surging AI-related demand is testing factories' ability to keep up as prices continue to surge.
