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Macro Pulse highlights recent activity and events expected to affect the U.S. economy over the next 24 months. While the review is of the entire U.S. economy its particular focus is on developments affecting the Forest Products industry. Everyone with a stake in any level of the sector can benefit from
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Wednesday, August 4, 2021

July 2021 ISM and Markit Surveys

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The Institute for Supply Management‘s (ISM) monthly sentiment survey showed another slight decrease in the proportion of U.S. manufacturers reporting expansion in July. The PMI registered 59.5%, a dip of 1.1 percentage points (PP) from the June 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 (-7.3PP), input prices (-6.4PP) exhibited the largest changes.

“Companies and suppliers continue to struggle to meet increasing demand levels,” observed Timothy Fiore, Chair of ISM’s Manufacturing Business Survey Committee. “As we enter the third quarter, all segments of the manufacturing economy are impacted by near record-long raw-material lead times, continued shortages of critical basic materials, rising commodities prices and difficulties in transporting products. Worker absenteeism, short-term shutdowns due to parts shortages and difficulties in filling open positions continue to be issues limiting manufacturing-growth potential.”

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The services sector -- which accounts for 80% of the economy and 90% of employment -- jumped to a new all-time high of service-sector respondents reporting expansion (+4.0PP, to 64.1%). The most noteworthy changes in the sub-indexes included exports (+15.1PP), imports (-6.6PP) and employment (+4.5PP).

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Of the industries we track, only Ag & Forestry did not expand. Respondent comments included the following:

Construction. “Costs have risen dramatically in the last 45 days. Lodging, fuel, travel and supplies are all rising sharply. Costs for available labor are also rising, as demand increases in a diminished labor pool.”

Real Estate. “Business continues to gain speed as the economy recovers and assuming there won't be additional government-mandated lockdowns.”

 

Findings of IHS Markit‘s July survey headline results conflicted with their ISM counterparts. Manufacturing: Markit ticked up to a new record high while ISM kept dropping; services: Markit decelerated sharply while ISM soared to a new record.

Manufacturing. July PMI ticks up to record high, but supply delays and price pressures also hit new peaks

Key findings:

* Sharper expansions in output, new orders and employment
* Cost pressures spike amid record shortages and efforts to build stocks
* Backlogs rise at near-record pace amid capacity

 

Services. Softest rise in business activity since February

Key findings:

* Further marked expansions in output and new business
* Joint-quickest rise in backlogs for almost a year
* Inflationary pressures ease but remain historically strong

 

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

Manufacturing. “July saw manufacturers and their suppliers once again struggle to meet booming demand, leading to a further record jump in both raw material and finished goods prices.

“Despite reporting another surge in production, supported by rising payroll numbers, output continued to lag well behind order book growth to one of the greatest extents in the survey’s 14-year history, leading to a near-record buildup of uncompleted orders.

“Capacity is being constrained by yet another unprecedented lengthening of supply chains, with delivery delays reported far more widely in the past two months than at any time prior in the survey’s history. Manufacturers and their customers are consequently striving to maintain adequate inventory levels, often reporting the building of safety stocks where supply permits, to help keep production lines running and satisfy surging sales.

“The result is perhaps the strongest sellers’ market that we’ve seen since the survey began in 2007, with suppliers hiking prices for inputs into factories at the steepest rate yet recorded and manufacturers able to raise their selling prices to an unprecedented extent, as both suppliers and producers often encounter little price resistance from customers.”

 

Services. “The pace of U.S. economic growth cooled in July, according to the final PMI data, but remained impressively strong to suggest that GDP will rise robustly again in the third quarter. Stimulus measures combined with the vaccine roll out and reopening of the economy continued to boost demand for goods and services, most notably among households and especially in consumer-facing services such as travel and hospitality.

“Some further easing in the rate of expansion is likely in coming months, however, as future growth expectations mellowed considerably during the month. This waning of optimism in part reflected the likely peaking of demand in the second quarter as the economy opened up, but also reflected a rising concern over the potential for the Delta variant to disrupt the economy again.

“With the survey once again bringing signs that capacity is being constrained by a lack of raw materials and labor, inflationary pressures look set to persist in the coming months, though it is encouraging to note that the overall rate of increase of selling prices for goods and services continued to moderate from May’s recent peak.”

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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