December 2022 ISM and Markit Surveys

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The Institute for Supply Management‘s (ISM) monthly sentiment survey of U.S. manufacturers for December 2022 contracted further. The PMI registered 48.4%, down 0.6 percentage point (PP) from November’s 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. Subindexes with the largest changes included prices paid (-3.6PP), production (-3.0PP), employment (+3.0PP), and exports (-2.2PP). 

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Activity in the services sector -- which accounts for 80% of the economy and 90% of employment -- fell into contraction in December (-6.9PP, to 49.6%). Inventory sentiment (+11.7PP), new orders (-10.8PP), and exports (+9.3PP) exhibited the largest changes.

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

Construction. “Residential new construction continues to be hindered by higher interest rates, slowing sales dramatically. A shift to rental projects seems to be a trend for all builders.”

Real Estate. “We are optimistic, although concerned, about continued inflation pressures, lead times that remain well above typical and supply chain issues that just won't go away. Increasing interest rates are dampening the residential housing construction market, which only adds to the concerns.”

 

Changes in S&P Global’s survey headline results were consistent with those of ISM. Details from S&P Global’s surveys follow --

Manufacturing. US manufacturing operating conditions deteriorate at fastest rate since May 2020.

Key findings:
* Output falls at sharper rate amid faster drop in new orders
* Inflationary pressures ease notably
* Employment rises only fractionally

 

Services. Decline in business activity gains pace in December, as demand conditions worsen.

Key findings:
* Activity and new orders fall at sharper rates as demand wanes
* Cost burdens rise at softest pace for over two years
* Employment growth only marginal

 

Commentary by Siân Jones, S&P Global’s senior economist:

Manufacturing. “The manufacturing sector posted a weak performance as 2022 was brought to a close, as output and new orders contracted at sharper rates. Demand for goods dwindled as domestic orders and export sales dropped. Muted demand conditions also led to downward adjustments of stock holdings, as excess inventories built earlier in the year were depleted in lieu of further spending on inputs. With the exception of the initial pandemic period, stocks of purchases fell at the steepest rate since 2009.

“Concerns regarding the outlook for demand weighed on hiring decisions. Job creation was only slight, and largely linked to skilled hires, as firms displayed caution.

“Sinking demand for inputs and greater availability of materials at suppliers led to a further easing of inflationary pressures. In fact, the rate of input price inflation fell below the series trend. Selling price hikes also eased, albeit still rising steeply. Slower upticks in inflation signal the impact of Fed policy on prices, but growing uncertainty and tumbling demand suggest challenges for manufacturers will roll over into the new year.”

 

Services. “U.S. private sector firms brought 2022 to a close signaling marked obstacles to overcome with relation to the health of the economy. Contractions in output and new business were broad-based and gathered pace in December as customer unease led to dwindling demand and order postponements.

“Despite weak demand conditions, firms continued to hire staff. Nonetheless, the pace of job creation was only slight as some firms turned their focus to filling temporary worker and long-held skilled jobs vacancies, whilst others reported instances of employees being laid off.

“A notable development through the month was a stark easing in inflationary pressures across the private sector. Muted demand for inputs led to the least marked uptick in costs for over two years, while companies also saw a slower increase in selling prices in a bid to entice customers and boost sales. The pass through of cost savings in the form of customer discounts will likely signal further adjustments to inflation as we enter 2023.”

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.

November 2022 ISM and Markit Surveys

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The Institute for Supply Management‘s (ISM) monthly sentiment survey of U.S. manufacturers for November 2022 slipped into contraction. The PMI registered 49.0%, down 1.2 percentage points (PP) from October’s 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. Subindexes with the largest changes included customer inventories (+7.1PP), order backlogs (-5.3PP), imports (-4.2PP), and input prices (-3.6PP). 

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Activity in the services sector -- which accounts for 80% of the economy and 90% of employment -- accelerated in November (+2.1PP, to 56.5%). Exports (-9.3PP), imports (+9.1PP), and slow supplier deliveries (-2.4PP) exhibited the largest changes.

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Of the industries we track, Wood Products and Paper Products both contracted. Respondent comments included the following:

Construction. “Generally unchanged month over month. New business requests are solid, with costs rising steadily for materials, meals and lodging.”

 

Changes in S&P Global’s survey headline results were mixed relative to those of ISM: For manufacturing both surveys fell into contraction; for services, ISM expanded more rapidly while S&P contracted more quickly. Details from S&P Global’s surveys follow --

Manufacturing. November sees first deterioration in U.S. manufacturing performance since June 2020.

Key findings:
* Renewed decline in output amid faster fall in new orders
* First improvement in supplier performance since October 2019
* Cost pressures ease further

 

Services. Business activity contraction gains pace as demand conditions weaken in November.

Key findings:
* Quicker fall in new orders weighs on service sector output
* Slowest rise in cost burdens since December 2020...
*...with selling price inflation softening again

 

Commentary by Chris Williamson, S&P Global’s senior economist:

Manufacturing. “A combination of the rising cost of living, higher interest rates and growing recession fears have led to slumping demand for goods in both the [domestic] market and abroad. Companies are consequently cutting production at a rate not seen since the global financial crisis, if the initial pandemic lockdowns are excluded. However, even with the latest production cuts, the downturn in demand has still led to one of the largest increases in unsold stock recorded since survey data were first available 15 years ago, which suggests that companies will continue to reduce production in the coming months to bring these inventories down to more manageable levels.

“Likewise, companies are slashing their purchases of inputs and raw materials at a rate not seen outside of the pandemic since the global financial crisis.

“This slump in demand is increasingly manifesting itself in a shift from a sellers’- to a buyers’-market for a wide variety of goods, as evidenced by improving supply chains, meaning price pressures are now abating rapidly.

“While supply chain worries persist, notably in relation to China’s lockdowns, companies’ concerns are increasingly moving away from the supply side to focusing on the darkening outlook for demand, meaning the business mood remains among the gloomiest seen over the past decade.”

 

Services. “The survey data are providing a timely signal that the health of the U.S. economy is deteriorating at a marked rate, with malaise spreading across the economy to encompass both manufacturing and services in November. The survey data are broadly consistent with the U.S. economy contracting in the fourth quarter at an annualized rate of approximately 1%, with the decline gathering momentum as we head towards the end of the year.

“There are some small pockets of resilience, notably in the tech and healthcare sectors, but other sectors are reporting falling output amid the rising cost of living, higher interest rates, weaker global demand and reduced confidence. Struggling most of all is the financial services sector, though consumer facing service providers are also seeing a steep fall in demand as households tighten their budgets.

“A striking development is the extent to which companies are increasingly reporting a shift towards discounting in order to help stimulate sales, which augurs well for inflation to continue to retrench in the coming months, potentially quite significantly.”

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.

October 2022 ISM and Markit Surveys

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The Institute for Supply Management‘s (ISM) monthly sentiment survey of U.S. manufacturers for October 2022 virtually stalled. The PMI registered 50.2%, down 0.7 percentage point (PP) from September’s 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. Subindexes with the largest changes include order backlogs (-5.6PP), slow deliveries (-5.6PP), and input prices (-5.1PP). 

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Activity in the services sector -- which accounts for 80% of the economy and 90% of employment -- decelerated further in October (-2.3PP, to 54.4%). Exports (-17.4PP), new orders (-4.1PP), employment (-3.9PP), and inventories (+3.1PP) exhibited the largest changes.

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Of the industries we track, Wood Products and Paper Products both contracted. Respondent comments included the following:

Construction. “Customers are starting to delay projects and/or entering smaller-scale scopes of work. We believe this is a continuation of an uncertain economic environment.”

Real Estate. “Prices seem to continue increasing for commodities, including plumbing, flooring materials, floor adhesives, door locks, and bedroom and bathroom doors. Delays in delivery have increased after leveling off in the middle of the year.”

Electrical Equipment, Appliances & Components. “Housing market is down, so our business is affected. Capacity has increased over the last two years due to high orders of consumer goods and appliances, so now we’re trying promotions to get our orders up to where we can use all our capacity.”

Wholesale Trade. “We are experiencing a bullwhip of oversupply on some goods … while still desperately short on other goods. The market is recovering very inconsistently.”

 

Changes in S&P Global‘s survey headline results were at least directionally consistent with those of ISM: For manufacturing both surveys barely avoided contraction; for services, ISM expanded more slowly while S&P contracted more quickly. Details from S&P Global’s surveys follow --

Manufacturing. Manufacturing output continues to rise, but weak demand conditions dampen growth.

Key findings:
* Easing supply chain issues support output growth...
* ...but new orders fall at sharpest rate since May 2020
* Inflationary pressures soften further

 

Services. Service sector output decline gathers pace amid renewed drop in new business.

Key findings:
* Solid contraction in activity amid weak client demand
* Near-stagnation in employment
* Inflationary pressures soften

 

Commentary by Siân Jones, S&P Global’s senior economist:

Manufacturing. “October PMI data signaled a subdued start to the final quarter of 2022, as US manufacturers recorded a renewed and solid drop in new orders. Domestic and foreign demand weakened due to greater hesitancy among clients as prices rose further and amid dollar strength. As such, efforts to clear backlogs of work, rather than new order inflows, drove the latest upturn in production.

“Confidence in the outlook waned as underlying data also highlighted efforts to cut costs and adjust to more subdued demand conditions in the coming months. Input buying fell sharply and resilience in employment stumbled, as the pace of job creation eased to only a marginal rate.

“On a more positive note, input costs rose at the slowest pace in almost two years amid signs of reduced disruption in supply chains. Lower demand for inputs was a contributing factor to this, however. Nevertheless, softer hikes in costs were reflected in a slower uptick in output charges, as firms sought to pass on cost savings where possible to try and boost sales.”

 

Services. “Service sector firms faced a challenging start to the final quarter of 2022, as a renewed contraction in new business dragged output down further. Demand conditions were hampered by tighter financial conditions and elevated rates of inflation, leading to reports of postponements and the delayed placement of orders as customers assess their spending.

“Subdued demand and weaker confidence in the outlook for output led to a near-stagnation in employment. Reports of the non-replacement of voluntary leavers brought signs that firms were evaluating costs and future demand more closely before advertising vacancies and expanding staffing levels.

“Nonetheless, momentum in previously soaring inflation slowed again. Hikes in costs softened, as service providers and manufacturers saw slower upticks in supplier and input prices. Meanwhile, private sector firms sought to boost demand through a slower increase in selling prices. Although softening, further elevated rises in prices paid by consumers present obstacles to firms in an already challenging demand environment and paint a concerning picture as we head towards the end of the year.”

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.

September 2022 ISM and Markit Surveys

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The Institute for Supply Management‘s (ISM) monthly sentiment survey of U.S. manufacturers for September 2022 narrowly avoided contraction. The PMI registered 50.9%, down 1.9 percentage points (PP) from August. (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. Subindexes with the largest changes include employment (-5.5PP), new orders (-4.2PP), slow deliveries (-2.7PP), and customer inventories (+2.7PP). 

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Activity in the services sector -- which accounts for 80% of the economy and 90% of employment -- decelerated slightly in September (-0.2PP, to 56.7%). Exports (+3.2PP), imports (+3.1PP), employment (+2.8PP), and input prices (-2.8PP) exhibited the largest changes.

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Of the industries we track, Wood Products and Paper Products both contracted. Respondent comments included the following:

Construction. “Sales have slowed significantly. Very challenging market. Trying to build through backlog. Manufacturers, distributors and installation trades are still busy and passing on price increases, while we are discounting homes to stimulate sales. Margins are compressing.”

Agriculture. “General slowdown in sales. We believe high commodity prices and inflation have impacted consumers’ desire for fertilizer from our turf and ornamental division. Farmers have already cut back on consumption due to pricing and weather-related issues.”

 

IHS Markit‘s survey headline results were mixed relative to their ISM counterparts – Markit’s manufacturing PMI inched higher while ISM’s declined; also, Markit’s services PMI contracted more slowly while ISM’s reflected modest expansion.

Manufacturing. Renewed expansions in output and new orders as cost pressures soften.

Key findings:
* Production and new orders rise, albeit only marginally
* Input cost inflation eases further as some inputs fall in price
* Employment growth fastest since March

Services. Business activity declines at slower pace amid renewed rise in client demand.

Key findings:
* Fall in output only marginal overall
* Cost pressures softest since January 2021
* Challenges hiring new staff drive increase in backlogs of work

 

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

Manufacturing. “With US manufacturers reporting a return to growth of order books for the first time in four months, as well as improved job gains, the September survey brings welcome news that business conditions are starting to improve again. However, even with the latest improvement, the weakness of the data in recent months still point to manufacturing acting as a drag on the economy in the third quarter, and demand will need to revive further if any meaningful positive contribution to GDP is going to be seen in the rest of the year.

“The brightest signs of life are coming from the domestic market, with producers of both consumer goods and, most notably, business equipment reporting improved sales to the home market. Manufacturers across the board are, however, reporting further export losses, linked to weaker economic growth abroad and the dollar’s strength.

“While the strong dollar is curbing exports, a beneficial effect from the greenback’s strength is being seen via lower import costs. With supply chain delays also easing substantially again in September and shipping costs falling, upwards pressure on firms’ costs has moderated sharply, which will feed through to lower goods prices to consumers.”

 

Services. “With service sector activity declining for a third straight month in September, businesses have faced a tough third quarter. Economic growth has come under pressure from falling output in both the manufacturing and service sectors, though in both cases September has seen some encouraging signals that business conditions may be starting to improve.

“Driving this improvement is a cooling of inflationary pressures in manufacturing supply chains, which is in turn alleviating cost growth for goods and energy in both manufacturing and service sectors, helping stimulate demand and allaying some concerns about the economic outlook.

“The worry is that tightening financial conditions, and notably higher borrowing costs, are exerting increased cost pressures on households and businesses, as well as hitting growth in the vast financial services sector, which has seen the steepest downturns in both demand and business activity in recent months and saw yet another marked worsening of business conditions in September.

“Furthermore, despite easing, inflationary pressures in terms of firms’ costs and average selling prices for goods and services remain elevated. With companies also reporting staffing issues and rising wages due to very tight labor market conditions, persistent inflation remains a concern at the same time that the economy appears to be struggling to regain momentum.”

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.

August 2022 ISM and Markit Surveys

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The Institute for Supply Management‘s (ISM) monthly sentiment survey for August 2022 reflected no change among U.S. manufacturers reporting expansion. The PMI registered 52.8%, unchanged from July. (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. Subindexes with the largest changes include input prices (-7.5PP), employment (+4.3PP), inventories (-4.2PP), and new orders (+3.3PP). 

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Activity in the services sector -- which accounts for 80% of the economy and 90% of employment -- accelerated slightly in August (+0.2PP, to 56.9%). Order backlogs (-4.4PP), slow deliveries (-3.3PP), inventory sentiment (-3.0PP), and export orders (+2.4PP) exhibited the largest changes.

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Of the industries we track, only Real Estate and Construction expanded. Respondent comments included the following:

Construction. “Some pullback on projects by clients, but activity is still strong for our company. This has alleviated some labor availability issues. Generally, there has been improvement in lead times and prices, but still longer and higher, respectively, than in 2021.”

 

IHS Markit‘s survey headline results were more pessimistic than their ISM counterparts -- both Markit PMIs declined.

Manufacturing. PMI drops to lowest since July 2020 amid further loss of new orders.

Key findings:

* Output and new sales fall further
* Input cost inflation slowest since January 2021
* Delivery delays least extensive since October 2020

 

Services. Business activity contracts at sharpest pace since May 2020 amid solid fall in new orders.

Key findings:

* Renewed decline in new orders drives faster fall in output
* Rates of input cost and output charge inflation ease further
* Employment growth slowest since January

 

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

Manufacturing. “US factory production was down for a second month running in August, with demand for goods having now fallen for three straight months amid the ongoing impact of soaring inflation, supply constraints, rising interest rates and growing economic uncertainty about the economic outlook.

“Barring the initial pandemic lockdowns months, this is the steepest downturn in US manufacturing seen since the global financial crisis in 2009.

“Worryingly, the sharpest drop in demand was recorded for business equipment and machinery, which points to falling investment spending and heightened risk aversion. Similarly, payroll growth slowed close to stalling, reflecting a growing reticence to expand workforce numbers in the face of a deteriorating demand environment.

“Falling demand for raw materials has, however, taken pressure off supply chains and helped shift some of the pricing power away from sellers towards buyers. Likewise, we are seeing more manufacturers reduce their selling prices to drive sales. Although still elevated by historical standards, the survey’s inflation gauges are now at their lowest for one and a half years, which should help to bring consumer price inflation down in the coming months.”

 

Services. “August saw the US economy slide into a steepening downturn, underscoring the rising risk of a deepening recession as households and business grapple with the rising cost of living and tightening financial conditions.

“Businesses are reporting a deterioration in output and order books of a degree exceeded since the global financial crisis only by that seen during the initial pandemic lockdowns.

“While orders are being lost across the board as a result of rising prices and the cost-of-living squeeze, the steepest downturn is being recorded in the financial services sector, reflecting the additional impact of higher interest rates and worsening financial conditions.

“Jobs growth has meanwhile cooled as companies grow increasingly reluctant to expand in the face of falling demand and an uncertain outlook, which will serve to further dampen growth in the coming months.

“One positive form the survey was a substantial fall in the rate of input cost inflation, which should help to moderate consumer price growth in the months ahead, albeit with the rate of increase remaining stubbornly elevated.”

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.

July 2022 ISM and Markit Surveys

 

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The Institute for Supply Management‘s (ISM) monthly sentiment survey for July 2022 reflected a smaller proportion of U.S. manufacturers reporting expansion. The PMI registered 52.8%, a decrease of 0.2 percentage point (PP). (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. Changes among the subindexes seem to reflect continued improvement in supply-chain bottlenecks (but, also a slowing economy). Input prices (-18.5PP), customer inventories (+4.3PP), imports (+3.7PP), and slow deliveries (-2.1PP) exhibited the largest changes. 

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Activity in the services sector -- which accounts for 80% of the economy and 90% of employment -- accelerated slightly in July (+1.4PP, to 56.7%). Input-price increases (-7.8PP), new orders (+4.3PP) and slow deliveries (-4.1PP) saw the largest changes.

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Of the industries we track, only Real Estate and Construction expanded. Respondent comments included the following:

Construction. “Interest rates have significantly impacted the homebuilding market. Cancellation rates have increased, as homebuyers can no longer afford the monthly payment. Traffic to our communities is down. Inflation has sidelined many would-be buyers.”

 

IHS Markit‘s survey headline results were mixed relative to those of their ISM counterparts. Both reported weaker manufacturing activity. For services, ISM accelerated whereas Markit fell into contraction.

Manufacturing. PMI at lowest for two years as output and new orders fall in July.

Key findings:

* Production falls as demand conditions weaken
* Inflationary pressures ease further
* Labor and material shortages persist

 

Services. Business activity declines for first time in over two years amid soft demand conditions.

Key findings:

* Fastest fall in output since May 2020
* Cost pressures ease further
* Business confidence slumps to lowest in almost two years

 

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

Manufacturing. “With the exception of pandemic lockdown periods, July saw US manufacturers report the toughest business conditions since 2009. A growth spurt in the spring has quickly gone into reverse, with new orders for factory goods down for a second straight month in July, leading to the first drop in production for two years and sharply reduced employment growth.

“The rising cost of living is the most commonly cited cause of lower sales, as well as the worsening economic outlook.

“Companies are also taking an increasingly cautious approach to purchasing and inventories amid the gloomier outlook, and likewise appear to be cutting back on investment, with new orders falling especially sharply for business equipment and machinery in July.

“Supply chain problems remain a major concern but have eased, taking some pressure off prices for a variety of inputs. This has fed through to the smallest rise in the price of goods leaving the factory gate seen for nearly one and a half years, the rate of inflation cooling sharply to add to signs that inflation has peaked.”

 

Services. “US economic conditions worsened markedly in July, with business activity falling across both the manufacturing and service sectors. Excluding pandemic lockdown months, the overall fall in output was the largest recorded since the global financial crisis and signals a strong likelihood that the economy will contract for a third consecutive quarter.

“Tightening financial conditions mean the financial services sector is leading the downturn, with a further steep rise in interest rates from the FOMC since the survey data were collected likely to intensify the downturn. Higher interest rates, alongside the ongoing surge in inflation, have meanwhile spilled over to the consumer sector, meaning the surge in household spending on goods and activities such as travel, tourism, hospitality and recreation seen in the spring has now moved into reverse as household spending is diverted to essentials.

“Although employment continued to rise in July, the rate of job creation has also slowed sharply since the spring and looks set to weaken further in the coming months as firms cut operating capacity in line with weakening demand.

“The flip side of deterioration in demand is a welcome alleviation of price pressures, which hint at a peaking of inflation.”

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.

June 2022 ISM and Markit Surveys

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The Institute for Supply Management‘s (ISM) monthly sentiment survey for June 2022 reflected a smaller proportion of U.S. manufacturers reporting expansion. The PMI registered 53.0%, a decrease of 3.1 percentage points (PP). (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. Supply-chain bottlenecks may be subsiding, as the subindexes for slow deliveries (-8.4PP), new orders (-5.9PP), and order backlogs (-5.5PP) exhibited the largest changes. Input price increases decelerated slightly (-3.7PP) but remained significantly elevated.

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The services sector -- which accounts for 80% of the economy and 90% of employment -- grew more slowly in June (-0.6PP, to 55.3%). Order backlogs (+8.5PP), imports (-6.5PP), and inventories (-3.5PP) saw the largest changes. Service input-price increases also decelerated (-2.0PP).

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Of the industries we track, Wood Products and Paper Products contracted. Respondent comments included the following:

Construction. “[Interest] rate increases have slowed sales but have not helped with supply challenges yet.”

 

IHS Markit‘s survey headline results those of their ISM counterparts.

Manufacturing. PMI falls to near two-year low in June amid contraction in client demand.

Key findings:

* Output broadly flat as firms see fresh drop in new orders
* Inflationary pressures ease
* Future output expectations drop to lowest since October 2020

 

Services. New orders decline for first time since July 2020.

Key findings:

* Renewed contraction in new business
* Slower rise in activity, while business optimism drops
* Further sharp increase in input costs

 

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

Manufacturing. “The PMI survey has fallen in June to a level indicative of the manufacturing sector acting as a drag on GDP, with that drag set to intensify as we move through the summer. Forward-looking indicators such as business expectations, new order inflows, backlogs of work and purchasing of inputs have all deteriorated markedly to suggest an increased risk of an industrial downturn.

“Demand growth is cooling from households amid the cost-of-living crisis, and capital spending by companies is also showing signs of moderating due to tightening financial conditions and the gloomier outlook. However, most marked has been a steep drop in orders for inputs by manufacturers, which hints at an inventory correction.

“Some welcome news is that the drop in demand for inputs has brought some pressure off supply chains and calmed prices for a wide variety of goods, which should help alleviate broader inflationary pressures in coming months.”

 

Services. "June saw signs of a broad-based weakening of the economy with demand now falling in both the manufacturing and service sectors. While the survey data point to a stalling of GDP at the end of the second quarter, a downshifting in the forward-looking new orders index and drop in companies' future output expectations hints at falling economic activity as we head through the summer.

"Demand for goods and services from households is showing signs of moderating substantially due to the rising cost of living. Meanwhile, tighter financial conditions are starting to hit, and it was notable that the service sector slowdown was led by a steep drop in financial services activity.

"Meanwhile there was welcome news in terms of a marked easing in upward price pressures, but it's clear that price growth remains elevated despite coming off recent peaks, all of which points to a bout of stagflation in the near term."

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.

May 2022 ISM and Markit Surveys

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The Institute for Supply Management‘s (ISM) monthly sentiment survey for May 2022 reflected a slightly larger proportion of U.S. manufacturers reporting expansion. The PMI registered 56.1%, an increase of 0.7 percentage point (PP). (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 subindexes for customer inventories (-4.4PP), inventories (+4.3PP), and order backlogs (+2.7PP) exhibited the largest changes. Input price increases decelerated slightly (-2.4PP).

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The services sector -- which accounts for 80% of the economy and 90% of employment -- declined in May (-1.2PP, to 55.9%). Order backlogs (-7.4PP), business activity (-4.6PP) and slow deliveries (-3.8PP) saw the largest changes. Service input-price increases also decelerated (-2.5PP).

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

Construction. “Demand seems to be very high for all of the high-voltage electric products we purchase. Lead times are quadruple what they normally are.”

Paper Products. “We’ve continued to transition to North American sales to avoid ocean vessels, and we are apprehensive about the West Coast ports’ labor contract negotiations. A challenge of doing more business by rail is the backlog of rail cars and embargos.”

 

IHS Markit‘s survey headline results were mixed relative to their ISM counterparts -- manufacturing: ISM rose while Markit fell; services: both ISM and Markit retreated. Perhaps the biggest divergence was in input prices; ISM reflected decelerating price increases while Markit reported “soaring” prices.

Manufacturing. Manufacturing upturn slows amid cooling demand, surging costs and material shortages.

Key findings:

* Production and new orders increase at slower rates
* Cost inflation fastest since November 2021’s series peak
* Business confidence drops to lowest since October 2020

 

Services. Business activity growth eases amid series-record rise in costs and softer demand conditions.

Key findings:

* Output expansion softens amid slower growth in new business
* Input prices rise at fastest pace on record
* Sharp increase in employment

 

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

Manufacturing. “A solid expansion of manufacturing output in May should help drive an increase in GDP during the second quarter, with production growth running well above the average seen over the past decade. However, the rate of growth has slowed as producers report ongoing issues with supply chain delays and labor shortages, as well as slower demand growth.

“A cooling in new orders growth was in part linked to customers pushing back on high prices, though also reflected shortages and growing concern about the outlook.

“Input cost pressures meanwhile intensified further during the month. Although delivery delays were the least widespread for 16 months, pricing power remained firmly in the hands of the supplier, with rising energy, wage and transportation costs adding to firms’ cost burdens. The result was the steepest rise in costs since November, feeding through to yet another near-record factory gate price increase and serving as a reminder that inflationary pressures remain worryingly elevated.”

 

 Services. “Alongside the slowing in the manufacturing sector, the cooling pace of expansion in the service sector takes the pace of US economic growth down to the weakest so far in the pandemic recovery with the sole exception of January’s slowdown at the height of the Omicron wave. While the survey readings are consistent with GDP growing at an annualized rate of just under 2%, supporting the view that GDP will return to growth in the second quarter, it is worrying that growth momentum is being lost so quickly. Businesses report ongoing difficulties finding staff and souring raw materials, while demand growth measured by inflows of new orders for goods and services is expanding at the slowest rate for almost one-and-a-half years, as spending power is reduced by soaring inflation.

“The inflation surge meanwhile shows no signs of abating, with firms’ costs soaring higher at yet another survey record rate in May, reflecting rising energy, materials and staff costs.”

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.

April 2022 ISM and Markit Surveys

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The Institute for Supply Management‘s (ISM) monthly sentiment survey for April 2022 reflected a slightly smaller proportion of U.S. manufacturers reporting expansion. The PMI registered 55.4%, a decrease of 1.7 percentage points (PP). (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 subindexes for employment (-5.4PP), order backlogs (-4.0PP) and inventories (-3.9PP) exhibited the largest changes. Input price increases decelerated slightly (-2.5PP).

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The services sector -- which accounts for 80% of the economy and 90% of employment -- declined in April (-1.2PP, to 57.1%). Imports (+7.9PP), inventory sentiment (+6.5PP) and new orders (-5.5PP) saw the largest changes. Input prices again pushed higher (+0.8PP).

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All industries we track expanded. Respondent comments included the following:

Construction. “Mortgage rates have skyrocketed. While relatively low from a historical perspective, the new rates -- combined with historically high home prices -- will temper new home demand at some point over the next 12 months.”

IHS Markit‘s survey headline results were mixed relative to their ISM counterparts -- manufacturing: ISM fell while Markit rose; services: both ISM and Markit retreated.

Manufacturing. April PMI rises to seven-month high amid stronger demand, despite sharper price increases.

Key findings:

* Output growth quickens to fastest for nine months
* Inflationary pressures strengthen
* Stocks of purchases rise at series-record rate

 

Services. Sharp upturn in business activity, but inflationary pressures strengthen to record high.

Key findings:

* Output and new orders rise steeply despite growth easing
* Input costs and output charges increase at record paces
* Rate of job creation accelerates to strongest for a year

 

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

Manufacturing. “After a slow start to the year, which saw production growth almost stall, the manufacturing sector is starting the second quarter on a much stronger footing. Demand from consumers and businesses is proving encouragingly robust despite severe inflationary pressures, which intensified further during April.

“Both input cost and selling price inflation surged higher, the latter accelerating to a near-record rate, as firms faced rising energy prices, ongoing supplier-driven price hikes amid strained supply chains, and rising wage costs.

“In short, while the survey data add to indications that the pace of economic growth will improve in the second quarter after a lackluster first quarter, the less welcome news is that elevated inflationary pressures show no signs of relenting.”

 

Services. “Alongside the acceleration in manufacturing growth recorded by the S&P Global PMI in April, the sustained solid performance of the service sector points to GDP growth returning in the second quarter.

“Although the service sector lost some momentum in April, this merely reflects payback from the surge in spending seen at the end of the first quarter, when Omicron-related virus containment measures were eased.

“It’s clear that growth could be even stronger if activity was not still being constrained by supply chain bottlenecks and labor availability issues. Domestic demand remains buoyant among both households and businesses in spite of current inflationary pressures, and exports are being boosted by pent-up pandemic demand as global travel restrictions are eased. Exports of services grew in April at the fastest rate since data were first collected in 2014.

“The consequence of demand running ahead of supply is higher prices, with average charges levied for services rising at a sharply increased and unprecedented rate in April following a record increase in firms’ costs. Enjoying strong demand, firms were increasingly able to pass on higher energy, materials and staff costs to customers, indicating an economy that continues to run hot.”

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.

March 2022 ISM and Markit Surveys

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The Institute for Supply Management‘s (ISM) monthly sentiment survey for March 2022 reflected a slightly smaller proportion of U.S. manufacturers reporting expansion. The PMI registered 57.1%, a decrease of 1.5 percentage points (PP). (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 subindexes for input prices (+11.5PP), new orders (-7.9PP), and order backlogs (-5.0PP) exhibited the largest changes. 

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The services sector -- which accounts for 80% of the economy and 90% of employment – advanced further in March (+1.8PP, to 58.3%). Inventory sentiment (-15.1PP), exports (+8.0PP), and imports (-6.7PP) saw the largest changes. Input prices again pushed higher (+0.7PP).

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Of the industries we track, Wood Products and Ag & Forestry contracted, while the rest expanded. Respondent comments included the following:

Construction. “Pricing pressures are stronger than ever due to the Russia-Ukraine [war], and energy costs are skyrocketing.”

 

IHS Markit‘s survey headline results were mixed relative to their ISM counterparts -- manufacturing: ISM decelerated while Markit accelerated; services: both rose.

Manufacturing. Output growth accelerates to fastest in seven months as supply disruption eases.

Key findings:

* Production and new orders rise steeply
* Smallest deterioration in vendor performance for 14 months
* Cost pressures gain renewed momentum

 

Services. Business activity growth quickens amid stronger demand conditions, but charge inflation reaches series high.

Key findings:

* New business expansion accelerates to fastest since June 2021
* Selling prices rise at sharpest pace on record
* Backlogs of work grow at series-record rate

 

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

Manufacturing. “US manufacturing growth accelerated in March as strong demand and improving prospects countered the headwinds of soaring cost pressures and the Russia-Ukraine war.

“Order book growth has picked up as customers look to the further reopening of the domestic and global economies amid signs that the disruptions from the pandemic continue to fade.

“While companies continued to report widespread production constraints due to supply chain bottlenecks, the incidence of such delays is now lower than at any time since January 2021. Jobs growth has also improved as fewer companies reported labor shortages.

“Similarly, although price pressures remain elevated, with surging energy costs pushing firms’ costs higher at an increased rate in March, rates of inflation of both input costs and average selling prices have fallen from the record highs seen late last year to hint that consumer price inflation could likewise soon peak.

“It was especially encouraging to see business optimism about the year ahead improve further in March, despite the new uncertainties, sanctions and geopolitical risks caused by the Ukraine invasion, with optimism among producers now the brightest since late-2020.”

 

Services. “Business activity in the vast service sector enjoyed a boost from the relaxation of virus-fighting restrictions in March, regaining strong momentum after the Omicron-induced slowdown seen at the start of the year. Demand for services is in fact growing so fast that companies are increasingly struggling to keep pace with customer orders, leading to the largest rise in backlogs of work recorded since the survey began in 2009.

"However, while this suggests that companies have a healthy book of orders to sustain strong output in the coming months, the downside is further upward pressure on prices as demand exceeds supply. With firms' costs inflated by the soaring price of energy, fuel and other raw materials, as well as rising wages, prices charged for services are rising at an unprecedented rate. Consumer price inflation therefore looks likely to accelerate further as we head into the spring."

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.

February 2022 ISM and Markit Surveys

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The Institute for Supply Management‘s (ISM) monthly sentiment survey for February 2022 reflected a slightly larger proportion of U.S. manufacturers reporting expansion. The PMI registered 58.6%, an increase of 1.0 percentage point (PP). (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 subindexes for order backlogs (+8.6PP), new orders (+3.8PP), and exports (+3.4PP) exhibited the largest changes. 

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The services sector -- which accounts for 80% of the economy and 90% of employment -- retreated further in February (-3.4PP, to 56.5%). Exports (+7.1PP) order backlogs (+6.8PP), and new orders (-5.6PP) saw the largest changes. Input prices again pushed higher (+0.8PP).

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Of the industries we track, Paper Products and Construction expanded, while the rest contracted. Respondent comments included the following:

Construction. “We are getting price increases with no notice. For example, our engineered wood products supplier gave us a 10-to-20%...increase, effective immediately. We are also struggling to get materials. Suppliers cite poor employee attendance, elevated employee turnover and positions open longer than normal as they struggle to fill them.”

 

IHS Markit‘s survey headline results were mixed relative to their ISM counterparts -- manufacturing: ISM and Markit both rose; services: ISM fell while Markit rose.

Manufacturing. Output growth picks up amid stronger demand and easing supply disruption

Key findings:

* Sharper new sales growth supports upturn in output
* Deterioration in supplier performance the least marked since May 2021
* Cost pressures soften but output charges rise at faster pace

 

Services. Sharp upturn in activity amid stronger demand conditions, but selling price inflation reaches new high

Key findings:

* New business growth accelerates to seven-month high
* Output charges rise at fastest pace on record
* Rate of job creation quickens to sharpest since May 2021

 

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

Manufacturing. “The U.S. manufacturing sector rebounded in February after the Omicron wave brought production close to a standstill in January. However, output remains heavily constrained both by ongoing raw material supply bottlenecks and labor shortages, albeit with some signs that the supply chain crisis has continued to ease. The decline in virus case numbers should also help alleviate labor shortages as we head into the spring.

“Demand is clearly continuing to run well ahead of supply, meaning it is a sellers’ market for a wide variety of goods. Although the survey’s price gauges covering companies’ costs and selling prices are off the peaks seen last year, they remain very high by historical standards and point to persistent elevated inflation in coming months. With rising oil prices adding further to soaring costs, and the Ukraine crisis likely to add to global supply disruptions, the inflation outlook is an increasing concern.

“With the survey data collected prior to the escalation of the conflict in Ukraine, the full impact of the situation is yet to appear in the data. Supply chains are likely to be further disrupted, with existing shortages exacerbated by safety stock building, and prices will likely come under further upward pressure. Perhaps most important will be the effect on business optimism and whether the improvement in prospects seen in February will be reversed, which could lead to reduced spending and investment.”

 

Services. “U.S. service sector companies reported a strong rebound in business activity during February as virus containment measures were eased to the loosest since November. The data add to evidence from manufacturing surveys that the Omicron wave appears to have had only a modest and short-lived impact on the economy.

“February’s PMI surveys are broadly consistent with GDP rising at an annualized rate of 3.5%, representing a substantial improvement on the 0.9% rate signaled by the January surveys. First quarter GDP growth is therefore currently averaging just over 2%.

“Supply chain bottlenecks and poor labor availability remain widespread constraints on output, however, limiting economic growth in manufacturing and services, meaning demand continues to rise faster than output, resulting in unprecedented price pressures.

“The Ukraine conflict is leading to further upward movements in energy and broader commodity prices, which will add further to U.S. inflationary pressures. More uncertain will be the extent to which business confidence is being affected by the war. Business optimism about the year ahead had surged across manufacturing and services in February to the highest for 15 months, as firms looked ahead to looser COVID-19 restrictions and saw signs of easing supply constraints. However, the resilience of this optimism will be tested by the conflict in Europe and will need to be monitored in the coming weeks as a barometer of risk appetite in terms of both spending and investment.”

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.