At this point, getting a “clean” read on where we are in the post-pandemic economic rebound is mostly impossible, even when you’re consulting so-called “hard” data. With “soft” data, you can forget it.
Myriad distortions continue to play havoc with efforts to forecast the trajectory of various recoveries across economies, including and especially the world’s largest.
It’s with that in mind that ISM manufacturing came in slightly ahead of estimates for October in data released Monday. At 60.8 (figure below), the headline print was a touch better than the 60.5 consensus expected, but represented a deceleration from September.
Meanwhile, the final read on IHS Markit’s gauge for October slipped to 58.4 from the flash read of 59.2.
Frankly — and this is implicit in what I said above — I doubt the utility in consulting these surveys right now. They’re just a compendium of complaints.
“Getting anything from China is near impossible — extreme delays,” someone told ISM. “Business is getting stronger, but the supply chain is getting worse every day,” said somebody else.
It’s the same story in the IHS Markit report. “October saw US manufacturers report yet another near-record lengthening of supply chains, with shortages of components constraining production growth to the lowest since July of last year,” Chief Business Economist Chris Williamson said. “Around half of all companies reporting lower production in October attributed the decline to a lack of supplies [and] a further one-in-ten cited a lack of labor.”
Again, it’s the same thing month after month. The manufacturing economy is hitting capacity constraints.
Notably, though, Williamson observed that 25% of respondents said demand weakened. Some of that was due to other supply chain issues (i.e., customers didn’t order one part because they couldn’t the other parts they needed), but some was attributable to “push back on higher prices.” That may be the beginning of demand destruction.
In the ISM survey, new orders dropped to 59.8, down somewhat dramatically from 66.7 and the lowest since June of 2020.
ISM’s Tim Fiore recapped the usual litany of concerns, from “record-long raw materials lead times, continued shortages of critical materials, rising commodities prices, difficulties in transporting products, worker absenteeism, short-term shutdowns due to parts shortages, difficulties in filling open positions and overseas supply chain problems.”
The prices paid gauge rose to 85.7 in October, up from 81.2 the previous month. The employment index rose to 52, indicative of hiring.
It’s not that there’s “nothing to see here.” Rather, it’s that there’s quite a bit to see, but we’ve been looking at it for six months and the scene never changes.
H
You said the manufacturing economy is hitting capacity constraints. My question is, what is “capacity” today vs 2019 or 2020 EoY?
not a lot is said about China not shipping..due to continued substantial covid lockdowns. the news in the US is ‘no workers’ or ‘union dockworkers working slow’. what is ironic/funny is how US corporations invited many to reitre early (airlines, hospitals come to mind) which is a long term/permanent solution to a temporary problem. Corporate greed perhaps forced that thinking, as opposed to paid furloughs which would be too horrific in today’s ‘unheard of wealth and income imbalanced’ US (paying people to not work!! never!) But now, labor has the upper hand and is pushing wages up, which are sticky. Just heard another posit that 4.5% inflation is ‘runaway’.
Corporate greed (and short term profits as evidenced by stock prices) is the downfall of modern capitalism. US corporations drove offshoring for 40 years because of that mentality. How long will it take to unwind that? And how well will that work when the most important factor is tomorrow’s stock price.
There are 500,000+ containers sitting in or on ships off the port of Long Beach. Not an issue of China not producing and shipping.
It was surprising that ISM was not stronger IMHO…Given how it tends to track cyclical/defensive equities, it ought to have been stronger…that said with G3 credit impluse leading indicator pointing to a rollover, a quite steep one, then maybe it is just noise.