By Xavier Fontdegloria

U.S. manufacturers have reported that some of the supply chain shortages that have hampered production for months are beginning to abate, but that further improvement could be halted due to the Covid-19 Omicron variant.

Data from the Institute for Supply Management PMI showed Tuesday that the delivery times index fell in December to 64.9 from 72.2, the lowest reading since November 2020. The indicator suggests that delivery times of suppliers to factories continued to slow in December, but not as much as in the previous months.

"The index continues to reflect suppliers' difficulties in meeting companies' demand, but for the second straight month, supply chain performance is moving toward a more appropriate balance with demand," said Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee in the report.

However, the data doesn't signal an outright improvement, it just suggests that supply chain problems worsened less than in the previous months, economists say.

"There is plenty of reason for optimism about the outlook for manufacturing, but it is still going to be a while before supply chain disruptions are fixed, inventories are rebuilt, and the sector resembles something close to normal," Jefferies economists Thomas Simons and Aneta Markowska said in a note.

It is important to note that the latest survey was taken largely before the recent surge in Covid-19 infections, which presents some near-term risk of exacerbating both supply chain bottlenecks and factory labor shortages.

"While we had already suspected that [Omicron] would cause some renewed disruption to supply chains overseas, the surge in domestic virus cases to more than one million per day could deal a more significant blow to manufacturing output, as significant numbers of workers are forced to stay at home," Capital Economics senior U.S. economist Andrew Hunter said.

Veronica Clark, economist at Citi, said in a note that while the base case for the first half of 2022 is for progress in terms of disentangling global supply chains, disruptions could continue amid recurrent spikes in Covid-19 case counts.

Write to Xavier Fontdegloria at xavier.fontdegloria@wsj.com

(END) Dow Jones Newswires

01-04-22 1248ET