November 2021 ISM and Markit Surveys

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The Institute for Supply Management‘s (ISM) monthly sentiment survey showed a slight increase in the proportion of U.S. manufacturers reporting expansion in November. The PMI registered 61.1%, a rise of 0.3 percentage point (PP) from the October 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 customer inventories (-6.6PP), imports (+3.5PP), slow deliveries (-3.4PP), and input prices (-3.3PP) exhibited the largest changes. 

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The services sector -- which accounts for 80% of the economy and 90% of employment -- tiptoed up to another record high (+2.4PP, to 69.1%). Input prices (-0.6PP) and order backlogs (-1.4PP) backed off their previous record-high readings; slow supplier deliveries held steady at its all-time high; and inventory sentiment (-0.9PP) slipped to a new low. These outcomes are expressed in the survey’s headline as expansionary because such levels typically occur when demand is strong; in this case, however, they are associated with supply chain disruptions.

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Of the industries we track, only Wood Products did not expand. Respondent comments included the following:

Construction. “Construction material shortages and longer lead times continue to hamper operations. Significant cost increases from labor and freight are forecast for the start of next year.”

 

IHS Markit‘s survey headline results ran counter to their ISM counterparts.

Manufacturing. PMI drops to 11-month low amid softer demand conditions and material shortages

Key findings:

* Output growth subdued amid softer rise in new sales and supply shortage
* Job creation slows due to reports of labor shortages
* Input costs rise at fastest pace on record

 

Services. Service sector reports sustained strong business growth, but costs surge higher

Key findings:

* Output and new orders rise sharply but growth rates cool
* Cost inflation accelerates to second highest on record
* Job creation quickens, yet backlogs show near-record increase

 

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

Manufacturing. “Broad swathes of US manufacturing remain hamstrung by supply chain bottlenecks and difficulties filling staff vacancies. Although November brought some signs of supply chain problems easing slightly to the lowest recorded for six months, widespread shortages of inputs meant production growth was again severely constrained to the extent that the survey is so far consistent with manufacturing acting as a drag on the economy during the fourth quarter.

“While demand remains firm, November brought signs of new orders growth cooling to the lowest so far this year, linked to shortages limiting scope to boost sales and signs of push-back from customers as prices continued to rise sharply during the month.

“While average selling price inflation eased as firms sought to win customers, the rate of input cost inflation hit a new high, hinting at a squeeze on margins.”

 

Services. “US business activity continued to grow at a solid rate in November, adding to signs that the pace of economic growth is accelerating in the fourth quarter after the Delta wave induced slowdown of the third quarter. While growth is not matching the surge seen earlier in the year when the economy reopened, the fourth quarter expansion should be well above the economy’s long-run trend to mark a solid end to the year.

“Growth is lopsided, however, being led by the service sector as manufacturing remains heavily constricted by supply shortages and, in some cases, labor supply issues. These constraints are also increasingly affecting service providers, as evidenced by the service sector reporting a near record build-up of uncompleted orders during November as companies often lacked the capacity to meet demand. Cost pressures in the service sector also spiked higher in November, generally linked to higher prices paid for inputs and staff due to shortages, the rate of inflation running just shy of May’s all-time peak.

“While business expectations for the year ahead rose in November, the vast majority of the survey data were collected prior to the news of the Omicron variant, which casts a renewed shadow of uncertainty over the outlook for business and poses a downside risk to near-term growth prospects.”

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.