Originally published at The Boock Report
The June ISM manufacturing index rose 1.5 pts m/o/m to 60.2 and that was above the estimate of 58.5. The components though were more mixed. New orders fell .2 pts, backlogs were lower by 3.4 pts and employment was down by .3 pts. Inventories at both the manufacturing and customer level were little-changed m/o/m. What held up were exports that rose .7 pts but after falling by 2.1 pts last month. Stress on the supply chain was clearly evident as Supplier Deliveries jumped 6.2 pts to the highest level since 2004. ISM said, “Lead time extensions, steel and aluminum disruptions, supplier labor issues, and transportation difficulties continue.” Off the highest level in 7 years, prices paid fell 2.7 pts but 100% of industries reporting said they paid higher prices vs 94% in the 4 prior months.
SUPPLIER DELIVERIES (higher it goes, the longer the lead times)
Of the 18 industries surveyed, 17 saw growth vs 16 in May and 17 in March and April. ISM summed up the report by saying “Demand remains robust, but the nation’s employment resources and supply chains continue to struggle. Respondents are overwhelmingly concerned about how tariff related activity is and will continue to affect their business.” In response, the yield curve is flattening further as inflation and trade worries and US economic activity hitting major capacity constraints helps to explain the behavior in the curve along with the continued low level of yields in Europe. The 2s/10s spread is now down to 31 bps. It was at 35 bps one week ago and 43 bps 4 weeks ago.
The labor supply constraints, transportation shortage, and tariff worries were sprinkled throughout the quotes ISM included from the business. Here are some:
“Business is strong in all regions. Materials are tight. Trucking continues to be a major challenge.” (Chemical Products)
“Strong economic growth continues to put pressure/strain on capacity, lead time, availability and pricing across a broadening array of commodities and components.” (Computer & Electronic Products)
“U.S. tariff policy and lack of predictability, along with [the] threat of trade wars, [is a] causing general business instability and [is] drag on growth for investments.” (Electrical Equipment, Appliances & Components)
“Electronic component supply issues continue to disrupt production.” (Transportation Equipment)
“We export to more than 100 countries. We are preparing to shift some customer responsibilities among manufacturing plants and business units due to trade issues (for example, we’ll shift production for China market from the U.S. to our Canadian plant to avoid higher tariffs). Within our company, there is a sense of uncertainty due to potential trade wars.” (Food, Beverage & Tobacco Products)
“The Section 232 steel tariffs are now impacting domestic steel prices and capacity. Base steel prices have already increased 20 percent since March.” (Fabricated Metal Products)
“Transportation costs are going through the roof right now, which definitely impacts the decisions we’re making with regard to quantities we’re bringing in versus truckload and LTL.” (Furniture & Related Products)
“The economy and product demand still continue to be strong. Having trouble finding people [to fill] blue collar positions. Lead times for parts and materials are moving out, and we are seeing commodity cost pressures increases with the threat of tariffs. Additionally, suppliers are asking for more price increases.” (Machinery)
“The uncertainty of U.S. tariffs and the Canada/Mexico/E.U. retaliatory tariffs continue to cloud strategic planning efforts. Contingency planning (for tariffs) is consuming large amounts of manpower that could be used for more productive projects. The tariffs are improving margins in our raw material businesses; however, our businesses which are further up the supply chain are seeing significant inflation.” (Miscellaneous Manufacturing)
"The steel tariffs continue to drive uncertainty. Projects and services using steel have limited days that prices are good for. Trucking is tight, requiring advanced planning and increasing costs.” (Paper Products)
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