The American manufacturing industry is catching its breath; the supply bottleneck begins to break
The Institute for Supply Management (ISM) survey on Tuesday also suggested some improvement in labor supply, with an indicator of factory employment hitting an eight-month high. Still, Timothy Fiore, chairman of the ISM Manufacturing Firms Inquiry Committee, noted that “shortages of lower level critical materials, high commodity prices and product transportation difficulties continue to weigh on on reliable consumption “.
The investigation does not fully capture the impact of the Omicron COVID-19 variant, which is spreading rapidly in the United States and abroad. Soaring infections could force workers to stay home and halt temporary progress in the supply chain.
“There is still a long way to go before supply chains fully normalize, but falling prices and increasing employment are positive signs,” said Will Compernolle, senior economist at FHN Financial in New York.
The ISM index of domestic factory activity fell to 58.7 last month, the lowest level since January 2021, from 61.1 in November. A reading above 50 indicates an expansion of the manufacturing sector, which accounts for 11.9% of the US economy.
Economists polled by Reuters had forecast the index to drop to 60.1.
The six largest manufacturing industries – chemicals, fabricated metal products, computer and electronic products, food, transportation equipment, and petroleum and coal products – experienced moderate to strong growth.
Manufacturers of fabricated metal products have expressed optimism that “we have reached the top of the hill to begin to descend a gentle slope which allows us to return to something that looks like normal.” Their counterparts in the chemical industry said that “hunch says it is getting easier and easier to source chemical raw materials.”
Machine makers have reported that “steel costs seem to be going down a bit.” They also noted improvements in âsupplier performanceâ and âon-time deliveriesâ. But transport equipment manufacturers said capacity remained “limited due to the global shortage of chips.”
The measure of supplier deliveries in the ISM survey fell to 64.9 from 72.2 in November. A reading above 50% indicates slower deliveries to factories.
ISM’s Fiore said transportation networks, a harbinger of future supplier delivery performance, are still operating erratically, but there are signs of improvement.
Raw materials have been scarce as global economies recover from the coronavirus pandemic. The shortages were also exacerbated by the shift in demand for goods from services at the start of the pandemic. Millions of workers needed to produce and transport raw materials remain on the sidelines. (Graphic: More jobs than job seekers, https://graphics.reuters.com/USA-FED/JOBS/egvbkmeoepq/chart.png)
US stocks were trading mixed, with the Dow Jones Industrial Average and S&P 500 index setting new highs earlier in the session. The dollar was flat against a basket of currencies. The US Treasury prices were mostly lower.
PRICE GAUGE DROP
Emerging signs of improvement in supply chains suggest that ex-factory inflation may start to ease soon.
The survey’s measure of prices paid by manufacturers fell to 68.2 last month, the lowest level since November 2020, from 82.4 in November. The 14.2-point plunge was the biggest since October 2011.
This confirms the Federal Reserve’s long-held view that the current period of high inflation is transitory. Inflation is well above the US central bank’s flexible 2% target.
“The report is in line with our expectations that inflation will likely hit an inflection point in the first quarter of this year,” said Tim Quinlan, senior economist at Wells Fargo in Charlotte, North Carolina.
The ISM’s prospective new orders sub-index fell to 60.4 from 61.5 in November. With customer inventories remaining depressed, the slowdown in new order growth is expected to be temporary or limited.
Factories hired more workers, but turnover rates remained high, a trend that manufacturers say began in August.
Indeed, a separate Labor Department report released on Tuesday showed that a record 4.5 million Americans voluntarily quit their jobs in November, which will put pressure on companies to raise wages. in order to attract workers.
âReplacing these workers is proving exceptionally difficult,â said Julia Pollak, chief economist at ZipRecruiter. âIt’s the tightest job market ever. ”
There were 10.6 million vacancies at the end of November. The high number of vacancies meant that there were 0.65 unemployed per vacant position, an all-time low. Before the pandemic, there were normally around 2.3 unemployed people per vacant position. (Graphic: Mass Exit, https://graphics.reuters.com/USA-ECONOMY/znpnelbrxvl/chart.png)
The ISM manufacturing employment measure hit an eight-month high of 54.2 from 53.3 in November. This, combined with the very low number of claims for unemployment benefits for the first time, supports the view that employment growth accelerated in December.
Non-farm payrolls probably increased by 400,000 jobs in December after increasing 210,000 in November, according to a preliminary Reuters survey of economists. The Labor Department is due to release the December employment report on Friday.
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Paul Simao)