MNI INTERVIEW: US Factories Face New Backlogs From Omicron-ISM

U.S. manufacturers will likely face renewed bottlenecks as the Omicron variant spreads, Institute for Supply Management manufacturing chair Tim Fiore told MNI Tuesday.

"I'm definitely expecting problems," he said. "I'm expecting problems on the supplier delivery number," Fiore said, "and the employment numbers are going to to sag quite a bit, maybe even contract."

The ISM Manufacturing index fell 2.4 points to 58.7 in December, hitting below expectations but still indicating the 19th straight month of expansion, Fiore said, noting Omicron is not reflected in the numbers and it's now expected to have a larger impact than Delta.

"January and February are going to be difficult supplier delivery months and are going to be difficult employment months," he said, calling Omicron a speed bump. "The reason is this variant is much more contagious and it's spreading everywhere."

The supplier delivery figure will probably climb back up into the high 70s, he said, after it fell to 64.9 in December. The ISM order backlog index has also shown widening delays for 18 straight months.

SUPPLIERS WERE CATCHING UP

December's ISM report showed signs of supplier capacity making gains on demand, as the price index plummeted 14.2 points to 68.2, breaking a 12-month streak of readings above 70 percent.

"We're starting to get to that point where the suppliers were finally starting to catch up with the demand," Fiore said, also pointing to a fall in chemical and steel prices. "Suppliers have staffed up to meet the demand and they've caught up in the backlog. They are now saying that if they want to keep factories full they may need to relax prices a little bit."

The survey showed 47.4% of firms reporting higher prices, down from 67.9% in November.

"There are indications with lead times that there's easing on the input side, which consequently would say that you're going to see prices drop," Fiore said, additionally pointing to signs of easing in ocean freight, trucking, and general transportation. "The problem is is that Omicron is not going to help anything. It's only going to be a stronger headwind."

SUMMER PRICE PEAK?

ISM has reported it expected an 8.2% increase in manufacturing prices from December 2021 through July, before flattening through the remainder of 2022 and increasing 8.1% for all of 2022, a slower pace than the 14.5% rise in prices in 2021.

"We're going to peak in the summer and then run at that high level to the end of the year," said Fiore, who suggested wiggle room on price growth continuing into the fall but sticking to the projections which are based on information collected in November. "We've learned that when these variants come out it's a two to three month bump."