Is the US manufacturing rebound hitting a wall?
Probably not, but it’s certainly worth noting that durable goods orders dropped for the first time since the initial pandemic lockdowns.
Orders fell 1.1% last month, against expectations for a small gain.
Factories have been a bastion of stability over the course of the pandemic, an ironic twist for the world’s largest economy, which long ago transitioned to a model based primarily on a self-referential dynamic wherein low-paid services sector employees consume the same services whenever they get a day off from providing them.
Core capital goods orders dropped 0.8% in February, considerably worse than estimates.
Predictably, the poor showing was written off to bad weather and supply chain disruptions. It’s easy to lampoon those kinds of excuses, but usually, there’s a kernel of truth there. The weather was bad in parts of the country in February, after all. And everyone knows bottlenecks and other pandemic distortions are still playing havoc.
Meanwhile, the flash read on IHS Markit’s manufacturing PMI for the US in March was a slight miss. The 59 print compared to consensus of 59.5. The new orders gauge was the highest in almost seven years.
At 60, the services gauge was essentially in line with estimates, and the highest since July of 2014.
IHS Markit confirmed that supply chain problems are now constraining manufacturing. “Although capacity pressures stemming from extensive supply shortages constrained manufacturing output growth to the slowest for five months, goods producers reported the sharpest rise in new orders since June 2014,” the accompanying color said.
This is, of course, conducive to price pressures. “Unprecedented supply chain disruptions pushed price gauges higher once again,” IHS Markit went on to note. Input cost inflation was the fastest on record. Prices for raw materials, PPE and fuel prices “soared,” the report said.
Robust demand made it feasible to pass some of the costs on to clients. Selling price inflation rose at the briskest clip ever.
“Another impressive expansion of business activity in March ended the US economy’s strongest quarter since 2014,” Chris Williamson, Chief Business Economist at IHS Markit, remarked, adding that,
The vaccine roll-out, the reopening of the economy and an additional $1.9 trillion of stimulus all helped lift demand to an extent not seen for over six years, buoying growth of orders for both goods and services to multi-year highs. Producers were increasingly unable to keep pace with demand, however, due mainly to supply chain disruptions and delays. Higher prices have ensued, with rates of both input cost and selling price inflation running far above anything previously seen in the survey’s history.
Draw your own conclusions.
6 thoughts on “Price Pressures Boil On ‘Unprecedented’ Supply Chain Trouble”
Supply chain disruptions seems like the new buzzword/phrase. It would be interesting to know how much of the ‘disruption’ is due to shipping issues like container shortages or canal bottlenecks and how much is due to demand outstripping supply like semi conductor shortages stopping factories…
Or, worse. On some alternative outlets we should expect to read that the Illuminati are behind these “disruptions.” In fact, this is rational and makes perfect sense as this same group has, depending on the outlet one reads, been behind so many other events, whether we know and accept it or not.
Anecdote-last week my friend was trying to buy a new motor for his pontoon boat, the marina told him they’re back ordered through 2022
I’ve been waiting seven months for a whole-house standby generator. Finally, I have prospective date for getting the product. We’ll see.
Remember in 2019 when Warren and Kraft totally screwed up revenue recognition and got caught? The pandemic has probably influenced accounting irregularities and fraud and all that risk that used to matter … now risk, including pandemics, 911-type stuff, nuke accidents and all major events are now no longer linked to risk.
“According to Monday’s filing with the SEC, the miscalculations were due in part to recognizing the benefits of costs and rebates in the wrong time period, which the company said it has since corrected.
“During the course of a thorough internal investigation, some discrepancies were uncovered which affected the way earnings were calculated between periods,” a Kraft Heinz spokesperson said in a statement to CNBC. “While we don’t believe that the misstatements are quantitatively material to any prior period, due to the qualitative nature of the matters identified, the Company determined that it is appropriate to correct the errors in previously issued financial statements.””
I mean a lot of companies are not interested in increasing capacity to meet demands of temporary consumer financial conditions. If you sold out your inventory you don’t necessarily take any action in response. Additionally shipping has had so many issues related to Covid from crews stranded at sea for months and months past their scheduled tours to storms capsizing them to massive backlogs unloading at port. I’ve had items in port since November that still haven’t been unloaded. Add in actual production challenges related to dealing with Covid for over a year and well… there’s definitely wall to hit.