Welcome to Fall. Hope you all had a wonderful Labor Day Weekend and enjoyed some good family time. I will be taking a break next week so there will not be an update on Monday September 14.
Last week I predicted the ISM report on manufacturing would come in around 55. I was off by 1% as it came in at a much stronger 56 showing incredible strength. Virtually all the underlying segments in the report were also as strong. New orders were up from 61.5 to 67.6 which led to a back log in order growth from 51.8 to 54.6. There was a balance of growth between export orders and import orders, both grew by levels in the upper 2’s. While customer inventories have been low over the last 47 months, this past month the level moved into the Too Low level. Overall this factor is behind the times as more companies are keeping lower levels of inventory and relying on the supply chain to fund their needs. This is getting to the stretch point that is no longer sustainable.
The ISM Report shared that all but hot rolled steel is up in price. This follows that there is a growing number of commodities that are in short supply including aluminum, electronic components, freight, lumber, when you can find it and Personal Protective Equipment. We can expect a heating up in price increases over the next couple of months.
The respondents in the report had a number of interesting comments. Even with Covid surging overseas, current lines of supply are not being negatively impacted. Places such as the Philippines, Hong Kong and Brazil are meeting the demand of orders in spite of an outbreak of Covid. The current sales within the US is at a level that is well above forecasts in the fabricated metal market. Homebuilding continues to be robust soaking up much of the commodities. The only market that is seeing continued softness is in machinery as many firms continue to have capacity to meet the existing growth. This may change in 2021 but for now we have a good runway for the orders to be met.
The paper industry continues to see strong growth, a sign that both office and manufacturing is doing well. With the weak dollar, export orders for paper and corrugated products are rising above expectations. Manufacturing overall continues to look bright for the next few months.
The ISM Non-manufacturing report for August came in at 56.9 down from the July number of 58.1. Any number over 50 indicates growth so at 56.9 the non-manufacturing sector is growing, just at a slower pace than in July.
Nothing in the report indicates anything dire. In fact 15 of the 18 industries assessed showed growth in August. Only three industries, mining, information and other services, showed an actual decline. The issue just seems to be a higher base that was set in July that was tough to achieve after a second month. It is kind of a math thing. There is just less of the economy reopening since so much opened earlier.
As with the manufacturing report, prices are rising. The lower productivity along with a shortage in most supply chains due to shut downs, is creating an inflationary push. Once the supply chain is back in full bloom the shortages should abate and prices will moderate. Remember prices are elastic up, and sticky down so do not expect much if any price reductions from the increases we currently are seeing.
Within the jobs report on Friday was the growth in employment in manufacturing. New employment created in August was 29,000 in manufacturing. The expectation was much higher at 50,000. With the existing demand within the manufacturing sector, we would expect a higher number. There continues to be a significant excess capacity available nationwide. Firms are able to get more use out of their equipment without having to hire. The rubber band is stretched about as far as it can be. We should expect to see a rise in manufacturing employment coming up in the next two months.
Have a great couple of weeks, enjoy the fall weather if it comes your way.