May 03, 2021 | 10:35
Back Up Please: U.S. Manufacturing Needs Breathing Room (and Time)
I wonder if Fed Chair Powell feels that the U.S. took a step closer to "substantial further progress". Since the FOMC meeting, real GDP jumped 6.4% annualized (or nearly 10% when you strip out government spending, trade and inventories), and real PCE jumped 3.6% in March (good hand-off to Q2).
I know, I know, manufacturing activity took a step back in April for the first time since the start of the year. The U.S. ISM manufacturing PMI unexpectedly fell in April, down 4.0 pts from near four-decade highs to 60.7 but that is still far, far above the 50 line. Please take a look at the chart below. And, given all the roadblocks—starts with "short" and ends with "ages"—placed in front of not just manufacturers but other parts of the economy as well, are we in shock? Hardly.
The month-to-month moves were not positive (obviously): new orders were down 3.7 pts but continues to bob around the 60-to-70 mark, production fell 5.6 pts, supplier deliveries were actually less delayed, employment dropped 4.5 pts and inventories declined 4.3 pts. But the levels remain very high. Again, I invite you to turn your gaze down to the charts below.
But every single industry reported growth... all 18 of them in this survey... that is the first time that has happened since 2014.
What did they say? What issues are businesses facing?
Here's a sample..... "the current electronics/semiconductor shortage is having tremendous impacts....demand is outpacing supply....had to trim some production due to the global chip shortage....business is picking up as restaurants open...steel prices are crazy high....worried about getting the materials to support production....market capacity in most areas is oversold, with no realistic improvement on the horizon....in 35 years of purchasing, I've never seen anything like these extended lead times and rising prices.... transportation and trucking are also a big challenge.... supply chain delays hamper our ability to sell more..."
Gosh. Does that sound like businesses are sitting idle? These are still problems, though, which can and will slow activity in coming months. But they should be transitory.
Construction is also being challenged by supply issues, at least on the residential front. In a separate release, U.S. construction spending rose just 0.2% in March (private +0.7%, public -1.5%) while February's 0.8% decline was trimmed to -0.6%, and January's 1.2% jump was slashed to just +0.6%. All the gain was in residential projects (+1.7%) while non-residential spending fell for the second straight month, down 1.1%. Commercial construction spending (the bulk of non-res) remained week, down 0.5% in March. This will take some time to return.
Bottom Line: Nothing goes in a straight line. Activity continues to return to normal and the rush to get out and about is causing a traffic jam in materials and people. Patience.