Price Pressures, Price Pressures, Price Pressures

In a somewhat unexpected turn for an economy hitting on all cylinders, ISM manufacturing posted a sizable miss for April.

The headline print was “just” 60.7, still elevated, but well off consensus, which was looking for 65.

The range of estimates, from more than five-dozen economists, was 61.4 to 68. So, April’s read came in below the most pessimistic guess.

“The manufacturing economy continued expansion in April. Survey Committee Members reported that their companies and suppliers continue to struggle to meet increasing rates of demand due to coronavirus impacts limiting availability of parts and materials,” ISM Chair Tim Fiore said Monday, adding that “recent record-long lead times, wide-scale shortages of critical basic materials, rising commodities prices and difficulties in transporting products are continuing to affect all segments of the manufacturing economy.”

In March, ISM registered the highest since 1983. April’s read, while suggesting some deceleration, still pointed to robust activity. The breakdown showed key components cooling, even as prices paid jumped to a new “since 2008” high, indicative of a trend which many point to as a harbinger of rising consumer prices.

The backlogs gauge hit a record. “10 months of new-order intakes [are] more than fully offsetting production outputs,” the survey said. The customer inventories index dropped to 28.4.

“From this report it’s clear that supply issues, centered on the global semi-conductor chip shortage, are constraining output growth,” ING wrote, noting that in addition to auto makers, “other industries are going to be impacted and it will have knock-on effects for companies throughout the supply chains – if you can’t get enough chips, there is no point ordering other components in the same numbers.”

Meanwhile, the final read on IHS Markit’s US manufacturing PMI for April was basically unchanged from the flash print at 60.5. It’s largely the same story: Price pressures, price pressures and price pressures. “Dylan, Dylan, Dylan…” (Somebody will get the joke.)

“US manufacturers reported the biggest boom in at least 14 years during April [but] supply chain delays worsened, running at the highest yet recorded by the survey, choking production at many companies,” Chris Williamson, Chief Business Economist at IHS Markit remarked. “Worst affected were consumer-facing firms, where a lack of inputs has caused production to fall below order book growth to a record extent over the past two months as household spending leapt higher.”

In short, demand is picking up and that’s colliding with supply chain constraints, bottlenecks and surging input prices.

“Suppliers have been able to command higher prices due to the strength of demand for inputs, pushing material costs higher at a rate not seen since 2008,” Williamson went on to say.

You can draw your own conclusions from the above. It’s not particularly challenging to connect these dots.