The Institute for
Supply Management‘s (ISM) monthly sentiment survey showed a decrease in the
proportion of U.S. manufacturers reporting expansion in April. The
Despite the headline retreat, “manufacturing performed well for the 11th straight month, with demand, consumption and inputs registering strong growth compared to March,” observed Timothy Fiore, Chair of ISM’s Manufacturing Business Survey Committee. “Labor-market difficulties at panelists’ companies and their suppliers persist. End-user lead times (for refilling customers’ inventories) are extending. This is due to very high demand and output restrictions, as supply chains continue to respond to strong demand amid COVID-19 impacts.”
The services sector -- which accounts for 80% of the economy and 90% of employment -- edged lower from March’s all-time high of service-sector respondents reporting expansion (-1.0PP, to 62.7%). The most noteworthy changes in the sub-indexes included new orders (-4.0PP), slow deliveries (+5.1PP), and order backlogs (+5.5PP).
Of
the industries we track, only Ag & Forestry contracted. Respondents included
the following:
Construction. “Consistent with the past year, labor continues to
be the biggest issue we are facing. Finding and retaining labor -- skilled and
unskilled -- is highly challenging and frustrating. As the challenges continue,
we are not accepting all the work that we could if we had the labor.”
Real Estate. “Business levels are quite strong as we head into
the spring construction season.”
Findings
of IHS Markit‘s
April survey results were generally consistent with their ISM counterparts.
Manufacturing. Strongest improvement in operating conditions on
record amid marked uptick in client demand
Key findings:
*
New order growth accelerates to 11-year high
* Greatest deterioration in vendor performance on record leads costs to soar
* Job creation quickens as backlogs of work accumulate markedly
Services. Business activity expands at fastest pace on record
amid marked uptick in client demand
Key findings:
*
Most marked upturns in output and new orders on record
* Employment growth accelerates
* Cost pressures strongest on record
Commentary
by Chris Williamson, Markit’s chief business economist:
Manufacturing. “U.S. manufacturers reported the biggest boom in at
least 14 years during April. Demand surged at a pace not seen for 11 years amid
growing recovery hopes and fresh stimulus measures.
“Supply
chain delays worsened, however, running at the highest yet recorded by the
survey, choking production at many companies. Worst affected were
consumer-facing firms, where a lack of inputs has caused production to fall
below order book growth to a record extent in over the past two months as
household spending leapt higher.
“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.
“Attempts
to expand capacity via hiring extra staff gained further momentum, though in
some cases staff shortages were an additional constraint on production.
However, with confidence in the outlook continuing to run at one of the highest
levels seen over the past seven years, buoyed by vaccine roll-outs and
stimulus, further investment in production capacity should be seen in coming
months, helping alleviate some of the price pressures.”
Services. “Thanks to the cocktail of a successful vaccine
roll-out, the reopening of the economy, ultra-accommodative monetary policy and
injection of fresh fiscal stimulus, businesses are reporting the strongest
surge in demand seen for at least a decade.
“The
upswing in demand has led to one of the strongest months of job creation yet
recorded by the survey as business prepares for better times ahead.
“The
biggest threat to the outlook remains new virus variants, which will inevitably
mean international travel and associated business activity will stay under
pressure for some time to come, but in the meantime the domestic economy is
faring very well, especially consumer facing industries.
“Another
concern is prices, with a record increase in service sector charges
highlighting how inflationary pressures are by no means confined to the
manufacturing sector. Indicators of price pressures and capacity constraints
will need to be monitored closely to assess whether such price rises are
transitory.”
The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.
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