MNI INTERVIEW: US Mfg Price Bounce Dents Buyer Demand - ISM

A second month of rising U.S. manufacturing price pressures appears to have held back new order demand in October, and suggests inflation will remain higher for longer, the Institute for Supply Management chair Tim Fiore told MNI Monday.

The Institute for Supply Management's price index jumped 4.5 points to 85.7 in October, the 17th consecutive month of expansion, and matching the highest level since July. The "double bounce" in the index for manufacturing prices also broke prior months' trend that indicated a softening in price pressures. The survey showed 72.3%% of firms reporting higher prices, up from 69.5%% in September, and 1% registered declining prices, down from 7.1% the prior month.

But Fiore maintained manufacturing price increases are transitory and will fall, although the timing and pace of the decline remains unknown. "It's definitely transitory, there's no doubt about that. The question is to the extent that it rose will it get back to where it was?" he said. "I don't see if getting back to levels that it was, whether it be plastics, natural gas, oil, or steel."

NEW ORDERS DROP

October's ISM report continued to show demand outpacing supply capacity, with longer backlogs and lead times, and more missed deliveries, with the headline index slipping to 60.8 from 61.1, slightly missing expectations. The new order level in October dropped 6.9ppts to 59.8, but Fiore said it is unlikely to remain below 60 through the end of the year.

Fiore previously warned that new orders levels in recent months had been "artificial" and bid up as buyers tried to get ahead of any expected price increases. "What you're seeing here is that the price levels being elevated for the last several months has caused buyers to pause."

"Buyers are skeptical about whether those prices are going to remain that high for Q2 and Q3 deliveries and that's why you saw the new order level come off," he said, also noting elevated lead times as a deterrent holding back orders.

PORT CLOGS RIPPLING

The ISM chief said port congestion in the United States is set to peak during the upcoming holiday season. But given the earlier Chinese Lunar New Year in February next year, the troubles will persist at least through the first half of next year.

"With the amount of backlog that we have, I don't think ports are going to clear up until after the first half of next year," he said.

"This whole problem here at the ports is rippling through the entire value chain at all different levels, all different tiers. It's not going to end just because we're at the peak of the retail season. We now have an early Lunar New Year season on us. I don't think things are going to get much worse but I don't see it getting better in the short term either," he said.

Asked about the Biden administration's efforts to improve supply chain kinks alongside other world leaders' moves to strengthen and diversify the entire supply-chain ecosystem, Fiore said there is no evidence the efforts have been successful. "We're not seeing it," he said. "The biggest issue is on the ports and we're not seeing the benefit of that yet."