‘This May Not Be Sustainable’: Factory Surveys Show Acute Price Pressures

‘This May Not Be Sustainable’: Factory Surveys Show Acute Price Pressures

In the first of this week’s marquee data in the US, ISM manufacturing handily topped expectations.

The gauge printed 60.8 for February, well ahead of consensus, which was looking for 58.9.

The range was 57 to 61.5. ISM now sits at the highest in three years.

This sends another positive growth signal to markets, and further underscores resiliency in manufacturing.

Market participants were keen to see if the survey revealed additional price pressures. And it did. Prices paid hit 86. That’s the highest since July 2008.

Pretty much everything looked hot. Encouragingly, the employment gauge rose to 54.4, so there are some actual people benefiting as the economy attempts to resolve the pandemic distortions which are, in part anyway, responsible for these blistering survey prints.

“Members reported that their companies and suppliers continue to operate in reconfigured factories. Issues with absenteeism, short-term shutdowns to sanitize facilities, and difficulties in hiring workers remain challenges and continue to cause strains that limit manufacturing-growth potential,” ISM’s Timothy Fiore said Monday, adding that “optimistic panel sentiment increased, with five positive comments for every cautious comment, compared to a 3-to-1 ratio in January.”

The survey flagged “continued supplier pricing power and scarcity of supply chain goods.”

In the sample of responses, mentions of higher prices were ubiquitous, e.g., “Prices increasing,” “Steel prices have increased significantly,” “Prices are going up, and lead times are growing longer by the day,” “Prices are rising so rapidly that many are wondering if [the situation] is sustainable.”

That latter quote is from someone in “wood products.” The chart (below) speaks for itself.

Meanwhile, the final read on IHS Markit’s manufacturing gauge for the US was down marginally from the flash print. But the same commentary on prices was prominent in the accompanying color.

“A concern is that shortages of raw materials have become a growing problem, with record supply chain delays reported in February, contributing to the steepest rise in material costs seen over the past decade,” IHS Markit’s Chris Williamson said.

“Prices charged for a wide variety of goods coming out of factories are consequently rising, which will likely feed through to higher consumer inflation,” he added.


2 thoughts on “‘This May Not Be Sustainable’: Factory Surveys Show Acute Price Pressures

  1. As an owner of a small main street specialty retailer we had hoped for a sales bump from the covid relief bill but we are still unable to obtain inventory to sell. We have items that have been on backorder since last June. I don’t see us getting much benefit from the bill since we are already selling everything we are able to get.

  2. There are three things to keep in mind. Unlike most recessions this one has been lead by services. Home building and manufacturing got a hit initially, but if anything, the virus is shifting resources to both housing and manufactured goods – autos and suburban homes being prime examples. Another thing to keep in mind is the cost of raw materials is not the most important input to most goods now. It is labor and the machinery/software to manufacture it or make it. Finally to the topic of prices- the market basket for consumers keeps shifting rapidly. So it is hard to measure overall prices. What happens if we get robust vaccination, and drugs to combat the virus? Travel, restaurants, and all sorts of entertainment bounces back and becomes a bigger part of the market basket. Housing and manufacturing takes a lesser share. And the prices of travel etc. go up, so you have unit prices up and number of units sold go up. That will influence the numbers as well. It is not going to be easy to measure all of this. But it is wise to keep these measurement factors on the radar.

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