Today's Report (11/01/2021)

Manufacturing PMI

According to a survey of purchasing managers in the sector, manufacturing activity in the United States maintained its strong momentum in October compared to the previous month, but factory production remained hampered by constraints such as supply-chain bottlenecks and labor shortages.

According to Institute for Supply Management data released Monday, the ISM Manufacturing Report on Business PMI fell to 60.8 in October from 61.1 in September.

According to the index, the manufacturing sector in the United States grew at a solid rate in October, roughly in line with the previous month. In recent months, the indicator has been buoyed by record-high delivery times caused by widespread supply-chain constraints.

According to Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, respondents to the survey reported an unprecedented number of challenges in meeting rising demand in October. "All segments of the manufacturing economy are impacted by record-long raw materials lead times, continued shortages of critical materials, rising commodities prices and difficulties in transporting products," he said.

Despite rising prices, demand remained strong in October. The new orders index fell to 59.8 from 66.7 the previous month, the customers' inventories index remained unchanged at 31.7, and the order backlog fell slightly to 63.6.

The production index remained relatively stable at 59.3, while the employment index increased to 52.0 from 50.2 in September.

Although the employment index increased for the second month in a row, hiring difficulties showed no signs of abating, according to the report. "Meeting demand remains a challenge, due to hiring difficulties and a clear cycle of labor turnover: as workers opt for more attractive job opportunities, panelists' companies and their suppliers struggle to maintain employment levels," Mr. Fiore said.

The supplier deliveries index rose to 75.6 from 73.4 in the previous month, while the inventories index rose to 57.0.

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Construction Spending Report

Construction spending during September 2021 was estimated at a seasonally adjusted annual rate of  $1,573.6 billion, 0.5% (±1.0%)* below the revised August estimate of $1,582.0 billion. The  September figure is 7.8% (±1.5%) above the September 2020 estimate of $1,459.3 billion.  During the first nine months of this year, construction spending amounted to $1,177.5 billion, 7.1%  (±1.0%) above the $1,099.8 billion for the same period in 2020.

US ISM Manufacturing PMI

What is it?

It is the first monthly report on the economy with a focus on manufacturing.

What are the fundamental effects?

If there is a pickup in demand for manufactured goods, purchasing managers quickly respond by increasing orders for production materials and other supplies. If manufacturing sales slow, these corporate buys will cut back on their industrial order. It is an effective gauge for turning points in the business cycle and has a close link with GDP. A reading above 50 is believed to be consistent with GDP growth of 2.5%. Every full point in the index above 50 can add 0.3 percentage points or so growth over the year.

How does it affect the markets?

CURRENCY - The dollar may bounce higher with a PMI above 50.

STOCKS - Equity markets prefer lower interest rates and could rally with the bond market.

BONDS - The bond market will rally when the ISM manufacturing index is weaker than expected.

US ISM Manufacturing Prices What Is It?

It reflects a change in prices paid by industry representatives for the products or services they receive.

US ISM Mfg. Employment Index, What Is It?

The employment subcomponent is a diffusion index relating to corporate hiring plans. A reading above fifty suggests the net, manufacturing companies are planning to add labour. While a reading below fifty suggests that more manufacturing companies are looking to reduce labor. The employment sub-index accounts for 20% of the overall ISM manufacturing Index.

US ISM Mfg. New Orders, What Is It?

It reflects a change in new orders of industrial companies.

US Construction Spending, What Is It?

The dollar value of new construction activity on residential, non-residential, and public projects.