December Manufacturing ISM Prices Index Fell Sharply, Is Inflation Peaking?

The ISM Manufacturing Index for December came in at 58.7% under the consensus 60.3% and 61.1% in November. Of note was the Prices Index falling to 68.2% from 82.4%. Price pressures mellowed, are still alleviated but a sharp pullback. The assumption is improved supply chain conditions; the question is does the Omicron variant bring the gains undone, or become deflationary with demand destruction? January will be illuminating.

ISM Manufacturing Dec 2022

The Prices Index 14.2-percentage point decrease month over month is big but ISM’s Fiore said that while prices growth might slow in 2022, it should continue. He cited ISM’s Semiannual Economic Forecast, released in December, which reported that manufacturing executives project prices to increase 8.1 percent in 2022, while services respondents expect a 9.2 percent hike. Last year, prices increased 14.5 percent this year in the manufacturing sector and 10.4 percent in services.

“I don’t think prices are at a peak yet, and I’m not speaking for me, I’m speaking for our (Business Survey Committee) respondents,” ISM Chair Tim Fiore said. “I would say it’s a short-term dynamic, and we’ll probably see prices go back up then in (the first quarter). A few respondents report fewer increases than in the prior couple of months, which is indicative of the plastics, steel and energy markets. But as long as there are variables with labor, that will drive transportation and supplier deliveries — as well as prices.”

Among the commodities reported down in price in December were some of the biggest inflation bellwethers: metals aluminum and steel, crude oil and natural gas, and plastic polymer polyethylene. Aluminum, steel and natural gas were also reported up in price, suggesting some level of volatility in those markets.

December marked the 19th straight month of expansion for the manufacturing sector, albeit at a slower pace. A number above 50.0% is indicative of expansion. However, the PMI® was at its lowest level in 11 months and ended a streak of five straight readings above 60 percent.

  • The New Orders Index dropped to 60.4% from 61.5%.
  • The Prices Index fell to 68.2% from 82.4%.
  • The Backlog of Orders Index increased to 62.8% from 61.9%.
  • The Supplier Deliveries Index fell to 64.9% from 72.2% (meaning the pace of deliveries is slower, but not as slow as in November).
  • The Production Index decreased to 59.2% from 61.5%.
  • The New Export Orders Index slipped to 53.6% from 54.0%.
  • The Employment Index rose to 54.2% from 53.3%.

With omicron the dominant strain in the U.S., more than 1 million new cases, a global single-day record, were reported on Monday. In the last week, Fiore said, he’s received reports of worker absenteeism at factories and suppliers as employees test positive. Those absences will strain supply chain resources in January and February, as demand is likely to remain high — creating conditions similar to when the delta variant spread last summer.

“I think the Employment Index numbers could sag a little, and supplier deliveries will struggle in January,” he said. “We may see an (increase) on inventories because there will be more work in process finished goods. … We had been projecting a positive path for two or three months, but omicron is something we’ll have to fight through for the next couple of months — and hopefully, there won’t be anything else replacing it.”

Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management® Manufacturing Business Survey Committee, calls supply chain equilibrium talking to Bloomberg TV

Source: ISM World

From The TradersCommunity News Desk