April 01, 2021 | 10:34
U.S. Manufacturing ... Godzilla or Kong? You Decide.
The manufacturing sector, globally, continues to roar. For example, the manufacturing PMIs hit record highs in Germany, and one-year highs in Italy. In China, well, the story was mixed but it is still expanding.
In the U.S.A, it clobbered expectations. The manufacturing PMI jumped 3.9 pts to 64.7 in March, a level not seen since December 1983, or when Paul McCartney and Michael Jackson's "Say Say Say" was #1 on the Billboard Charts. And, 17 of the 18 industries in the survey reported growth, the most since July 2018. All five components, weighing in at 20% each, gave the headline a boost:
Prices were steady but still elevated.
Alas, having too much demand is not always a good thing when there just isn't enough supply. And those problems, at least for supply chains, may become more of an issue in the next couple of months given the one-week shutdown of the Suez Canal.... think of the domino effect. And the comments from the respondents, while positive, were also negative. You can feel their frustration...... "expecting steady improvement... struggling to manage demand....no end in sight..... lack of qualified....talent.... had to provide better compensation....". Note that I mixed in comments from various industries but you get the idea. Take a look at the 2nd chart below on customer inventories.
Then there was construction spending. Total spending did not decline as much as expected, with the 0.8% drop in February weighed by nonresidential (-1.3%) and to a lesser extent, residential (-0.2%). This also follows some revisions to the prior two months... January was revised lower.(was +1.7%, now +1.2%) and December was revised higher (was +1.1%, now +2.1%). As you can see from today, and month after month, this series undergoes significant revisions but the trend is important and so far, construction is another source of strength for the American economy. But, the sector faces challenges, that is, supply is unable to meet demand. And more of that may be on the way in the years to come, given the Administration's infrastructure proposals.
Bottom Line: All of this comes before the March payroll report (due out on Good Friday). But it is clear that the Q1 strength in the U.S. economy is spilling over into Q2. However, watch out for the headwinds.