June 2021 ISM and Markit Surveys

Click image for larger version

The Institute for Supply Management‘s (ISM) monthly sentiment survey showed a slight decrease in the proportion of U.S. manufacturers reporting expansion in June. The PMI registered 60.6%, a dip of 0.6 percentage point (PP) from the May reading. (50% is the breakpoint between contraction and expansion.) ISM’s manufacturing survey represents under 10% of U.S. employment and about 20% of the overall economy. The sub-indexes for imports (+7.0PP), order backlogs (-6.1PP) and input prices (+4.1PP) exhibited the largest changes.

“Companies and suppliers continue to struggle to meet increasing levels of demand,” observed Timothy Fiore, Chair of ISM’s Manufacturing Business Survey Committee. “Record-long raw-material 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. Worker absenteeism, short-term shutdowns due to parts shortages, and difficulties in filling open positions continue to be issues that limit manufacturing-growth potential.”

Click image for larger version

The services sector -- which accounts for 80% of the economy and 90% of employment -- retreated from May’s all-time high of service-sector respondents reporting expansion (-3.9PP, to 60.1%). The most noteworthy changes in the sub-indexes included exports (-9.3PP), imports (+7.8PP) and employment (-6.0PP).

Click image for larger version

Of the industries we track, Real Estate and Ag & Forestry contracted. Respondent comments included the following:

Construction. “COVID-19 continues to cause troubles for all of our deliveries, as well as short supply a lot of materials. (Shortages of) lumber, copper, and steel continue, which is driving up pricing and lead times.”

 

Findings of IHS Markit‘s June survey results were generally consistent with their ISM counterparts.

Manufacturing. Output growth eases as supply-chain disruption worsens, despite marked rise in client demand

Key findings:

* Pressure on capacity weighs on production growth
* Supplier delivery times lengthen to greatest extent on record
* Input cost inflation hits fresh series record

 

Services. Strong business activity growth rounds off best quarter in PMI survey history

Key findings:

* Expansions in output and new orders ease but remain robust
* Further substantial increases in cost burdens
* Pressure on capacity builds amid hiring difficulties

 

Commentary by Chris Williamson, Markit’s chief business economist:

Manufacturing. “June saw surging demand drive another sharp rise in manufacturing output, with both new orders and production growing at some of the fastest rates recorded since the survey began in 2007.

“The strength of the upturn continued to be impeded by capacity constraints and shortages of both materials and labor, however, meaning concerns over prices have continued to build.

“Supplier delivery times lengthened to the greatest extent yet recorded as suppliers struggled to keep pace with demand and transport delays hindered the availability of inputs. Factories were increasingly prepared, or forced, to pay more to secure sufficient supplies of key raw materials, resulting in the largest jump in costs yet recorded.

“Strong customer demand in turn meant producers were often able to pass these higher costs on to customers, pushing prices charged for goods up at a rate unbeaten in at least 14 years.

“Capacity needs to be boosted and supply chains need to improve to help alleviate some of the inflationary pressures. However, companies reported increasing difficulties filling vacancies in June, and raising COVID-19 infection waves in Asia threaten to add to supply chain issues.”

 

Services. “June saw another month of impressive output growth across the manufacturing and services sectors of the US economy, rounding off the strongest quarterly expansion since data were first available in 2009.

“The rate of growth cooled compared to May’s record high, however, adding to signs that the economy’s recovery bounce peaked in the second quarter.

“Some of the easing in the rate of expansion reflects payback after especially strong expansions in prior months as the economy opened up from pandemic-related restrictions, especially in consumer-facing companies. However, many firms reported that business activity had been constrained either by shortages of supplies or difficulties filling vacancies. Backlogs of uncompleted orders are consequently rising at a rate unprecedented in the survey’s history, underscoring how demand is outstripping supply of both goods and services.

“These capacity constraints are not only stifling growth, but also driving prices sharply higher. June saw the second-steepest rise in average prices charged for goods and services in the survey’s 12-year history, though some encouragement can be gleaned from the rate of inflation easing in the service sector compared to May.”

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.