I remember the old school yard joke, April Showers bring May Flowers, what do May Flowers bring? It was a cute saying that you got caught at once and never forgot. But at this time of year it was always fun to repeat. Hopefully you will be able to gather together later this month for Thanksgiving with family safely. Family time together is too precious to miss. Family is one of the many things we can be thankful for. By the way, the answer to the above question is obviously, Pilgrims.
The ISM Manufacturing report on Monday was extremely strong. The Manufacturing number for October was 59.3 on the high end of my prediction last week. At a glance there was no part of the report that was soft. Leading indicator numbers in the report, new orders, up 7.7%, backlog of orders, up .5% and employment up 3.6%. Commodities were also up in price, with a very small amount of inflation kicking in. There was nothing in the report that indicated any slowing is in the near term.
There are some commodities that are in short supply. Electrical components, labor, lumber and of course personal protective gear. Some chemicals are also showing up in the caution area. Overall the commodities that are at risk of upsetting supply chains are concentrated in the construction field for right now. We will have to see if that continues.
The Service PMI report was equally as strong, coming in at 56.6. This was just slightly less than the September number of 57.8. Remember on both reports, Manufacturing and Service, any number over 50 represents a growth environment. The service sector is seeing prices increase across the board. We can expect some inflation in 2021.
The split decision from the election with Republicans appearing to be picking up seats in the House and holding their own in the Senate appears to be liked by at least the investors. The markets are looking at a couple of things. First no massive stimulus that would break the bank. A limited amount of stimulus is desperately needed for small business. This is likely to be approved during the lame duck session now that the election is over. The split also seems to preclude a reversal on the existing tax law avoiding a massive tax increase for corporations. Up in the air is the level of future regulations as well as what may happen to the whole finance industry once the President selection is finalized.
Oil supplies continue to be well above demand levels. This is primarily the result of the world market of Libya. A peace settlement earlier this year between the government and rebels ceased attacks on the countries oil infrastructure. However no one expected how fast Libya could possibly rebuild. They have gone from around 100,000 barrels per day in March to 500,000 per day now, to over 1,000,000 per day in December 2020. This oil is flooding the markets which are already saturated. This will continue to decimate the US oil industry driving many more firms, both directly related to pumping oil and indirectly in supplying the industry, into bankruptcy.
Have a great week.