Perhaps there’s a light at the end of the tunnel after all.
Two key gauges of pandemic-related distortions in the US manufacturing sector showed improvement last month, according to the December vintage of ISM manufacturing, which suggested “normal” may soon come into view, even if it remains but a speck on the horizon.
A softer print on the supplier deliveries index showed delivery rates are improving, ISM’s Timothy Fiore said Tuesday, noting that although transportation networks “are still performing erratically,” there are encouraging signs.
In addition to a sharp drop in the deliveries gauge (to 64.9 from 72.2), the prices index plunged to 68.2. That’s still elevated, but the MoM decline brought the gauge to the lowest since November of 2020 (figure below).
The read-through: A miss on the headline ISM print (58.7 versus the 60 economists expected) was something of a red herring.
Although production and new orders fell, the declines weren’t large, and the employment index moved further into expansion territory at 54.2, an eight-month high.
This is generally good news. And it came on the heels of cautiously constructive comments from the final December read on IHS Markit’s US manufacturing gauge.
“While shortages remained significant, the end of the year brought with it some signs that cost pressures have eased,” Sian Jones, a senior economist at IHS Markit said Monday, adding that “the uptick in input prices was the slowest for six months, and firms recorded softer increases in selling prices amid efforts to entice customer spending.”
One anecdote from the December ISM report captured it best. “Price increases appear to be slowing, lead times are shrinking slowly and inventories are growing,” a respondent in fabricated metal products remarked. “I hope we have reached the top of the hill to start down a gentle slope that lets us get back to something that resembles normal.”
Now if only we could remember what “normal” looks like. Maybe we won’t recognize it when we see it. After all, it’ll be wearing a mask too.
“It will be wearing a mask too” with a smile hiding ready to show itself soon enough
Hard to tell if the glass is half full or half empty when it’s bouncing around so much
Yet, there was this chart of semiconductors supply bottlenecks that was on Bloomberg the other day which showed them getting worse, so not sure which of these mixed signals to focus on.