Each month, Professor Brian Long, Director of Supply Chain Management Research at Grand Valley State University shares with selected business publications his analysis of Current Business Trends, from a West Michigan Perspective. MoodyOnTheMarket.com is privileged to be one of those publications. Here is Professor Long’s early December analysis, this month with a more national focus due to a glitch in data collection in Michigan for November:
The U.S. Economy
The rapid pace of the national economy eased modestly in November, according to the press release from the Institute for Supply Management, our parent organization. ISM’s index of NEW ORDERS remained positive but edged lower to +13 from +18. ISM’s PRODUCTION (a.k.a., Output) Index remained virtually unchanged at +18, up from +17. After statistical adjustments, ISM’s composite index posted at 61.1, modestly higher than September’s 60.8. However, all of these ISM statistics remain near the 38-year high of 64.7 set earlier this year in March.
A slightly different view of the U.S. economy comes from IHS Markit.com, the British international consulting firm. Their seasonally adjusted U.S. Manufacturing Purchasing Managers’ Index posted at 58.3 in November, down fractionally from October’s 58.4. Many of the survey respondents noted that longer lead time, supplier shortages, and higher energy prices were resulting in lost business opportunities.
Chris Williamson, Chief Business Economist at IHS Markit further noted: “Broad swathes of U.S. manufacturing remain hamstrung by supply chain bottlenecks and difficulties filling staff vacancies. Although November brought some signs of supply chain problems easing slightly to the lowest recorded for six months, widespread shortages of inputs meant production growth was again severely constrained to the extent that the survey is so far consistent with manufacturing acting as a drag on the economy during the fourth quarter. While demand remains firm, November brought signs of new orders growth cooling to the lowest so far this year, which may be linked to shortages and limiting the scope to boost sales. There are signs of push-back from customers as prices continued to rise sharply during the month. While average selling price inflation eased as firms sought to win customers, the rate of input cost inflation hit a new high, hinting at a squeeze on margins.”
Automotive
Although the chip shortage which has plagued the auto industry for months is still far from subsiding, there are signs that the situation may be stabilizing, albeit at a slower pace. The December 1st edition of Automotive News reported that November’s SAAR (Seasonally Adjusted Annualized Rate) of sales remained unchanged at 13.1 million units. However, our local auto parts suppliers continue to report recuring order disruptions. Among the firms still reporting monthly sales, American Honda skidded 17.1 percent, Toyota fell 25.4 percent, and beleaguered Subaru dropped 34.5 percent. By contrast, Ford posted a modest gain of 5.8 percent. Jeff Schuster from LMC Automotive further commented: “The supply shortage is being managed in very creative ways, from building vehicles without certain content to bringing chip development and production in-house for better supply chain visibility. However, the improvements in vehicle production are inconsistent around the world. China and India both saw stronger vehicle production in October, but North America and Europe remain constrained. Even as plants restart after being down for several weeks, they are not running near normal levels.
Industrial Inflation
At the national level, the ISM national index of PRICES eased to 65 from 71. The J.P. Morgan world index of PRICES eased considerably to 71.5 from 74.4. although they remained uncomfortable near record highs.
According to Timothy Fiore, chair of ISM’s survey committee: “This is the 15th month in a row that the index has been above 60 percent and the 12th consecutive month it has exceeded 70 percent. Aluminum, copper, corrugate and packaging materials; electrical and electronic components; energy; some plastics and plastic products; freight; and steels continue to remain at elevated prices due to product scarcity,”
Business and Consumer Confidence
After rebounding in October, the Conference Board’s October index of Consumer Confidence reversed course and eased to 109.5, down from 111.6. The University of Michigan Consumer Sentiment Index for September also eased to 67.4 from 71.7. Most of the anecdotal reasons centered around concerns that inflation may not be as “transitory” as the pundits have claimed.
Summary
Although the impact of the new Omicron variant of COVID-19 is still unknown at this time, it is now increasingly obvious that we should expect more variants to emerge for some time to come. New vaccines and new therapeutic treatments will help mitigate likely will not eliminate the problem. Continuing to deal with these new variants may in fact become the “new norm.” Supply chain disruptions may also continue to be the new norm, and any return to pre[1]pandemic normality still appears to be months away. The entire economic system of the world remains under stress, and there is a breaking point out there—somewhere.
