Manufacturing data released on Monday in the US showed better-than-expected numbers. According to analysts at Wells Fargo, factories are booming, but labor shortages, material shortages and tight inventories are contributing to soaring prices in all 18 industry groups and pushing the prices paid component to it highest level in more than a dozen years.
“Only the old-timers remember periods like this in manufacturing. The ISM manufacturing index tied its highest reading in more than 15 years in February. Were it not for the fact that inventories are so tight, the number would have been even higher. Businesses are having such a difficult time getting their hands on materials they are unable to add to inventories. The inventories component slipped into contraction territory at 49.7. The inventory component factors into the headline ISM index, customers’ inventories do not; and it’s a good thing too because customers’ inventories fell to 32.5, indicating they remain too low.”
“All 18 industry groups surveyed reported rising prices in February as the prices paid component jumped to its highest level since July 2008. The difference between then and now is that in 2008, the price gains were largely a commodities inflation story. This time, yes, commodity prices are rising rapidly, but demand is also ramping up at a time when capacity is already constrained—big difference.”