MNI INTERVIEW: Supply Kinks to Abate Despite Omicron - ISM

U.S. manufacturers are powering ahead in the final weeks of 2021, likely setting up for a strong 2022 performance despite supply chain constraints that will likely ease into next year, even amid the Omicron variant, Institute for Supply Management manufacturing chair Tim Fiore told MNI Wednesday.

"The biggest issue of concern is the international supply chain and those countries that don't have access to the vaccines and the best example is what happened in Malaysia with the semiconductor industry," said Fiore when asked about Omicron and the outlook. "If it's just another wave of another variant then that's okay and we'll deal with it."

The ISM Manufacturing index rose to 61.1 in November, indicating the 18th straight month of expansion even as limited supply continued constraining the expansion, but Fiore said Omicron is not reflected in the report and it is not currently expected to have much impact.

"Honestly, unless the variant turns out to be more deadly, it's just another Delta and the manufacturing economy did not suffer very much from Delta," he said.

PRICES ABROAD

Given what is known now, Omicron poses only a mild restraint on near-term growth, but it's plausible that another Covid-19 wave could pressure prices, he said.

"You'll definitely have continued strain on the transportation side and have pricing issues on the global supply chain," he said.

The Institute for Supply Management's price index eased 3.3 points to 82.4 in November, the 12th consecutive month of expansion above 70 percent. The survey showed 67.9% of firms reporting higher prices, down from 72.3%% in October, and 3.1% registered declining prices, up from 1% the prior month.

November's ISM report continued to show demand outpacing supply capacity. The new order level in November increased 1.7ppts to 61.5, meeting Fiore's past expectations to remain above 60.

"I said it maybe a year and a half ago and it probably is still the biggest issue - it's the global supply chain and the unknowns around that," he said. "We can manage our way through it here in the U.S., but the lack of adequate hospital facilities around the world and the lack of available vaccines means we're going to end up in these modes where disruptions abroad can hold us back by months."

EASING

The ISM chief said manufacturers are getting much closer to the point where they are sure of a continued easing pattern. But given the earlier Chinese Lunar New Year in February next year, the troubles risk persisting at least through the first half of next year before reaching an equilibrium in the second half of 2022.

"I have people on the panel telling me things are a little bit better, not only on the labor side but also on the supplier delivery side," he said. "I feel really good about this month. It's a high-quality month, even though the numbers are the same, elements underneath make you feel a lot better," Fiore said.

"2022 is going to be good, the whole year is going to be good."