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Demand is not the problem of the economy: Morning Brief

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Tuesday 3rd August 2021

A “peak” of economic activity sounds more frightening than it really is

Economists and strategists have been observing a peak in US economic growth for some time.

And production activity data released on Monday suggests that the time may have come now – unless you look past the headline numbers.

The Institute for Supply Management’s Purchasing Managers’ Index (PMI), released on Monday, was 59.5 in July, up from 60.6 in June. These data show that manufacturing has grown over the past month, albeit at a slower pace.

Any reading above 50 indicates that the sector is growing, while reading below 50 indicates that the sector is shrinking. This report also marks the third straight month that the ISM’s manufacturing PMI has fallen, after peaking at 64.7 in March.

However, the Headline Index overlooks what the internals of this data make clear, namely that demand continues to overwhelm the supply side of the economy.

“The ISM Manufacturing PMI has been very solid in the details,” said Neil Dutta, director of economics at Renaissance Macro Research. “Anyone who says the opposite does not know what he is doing.”

In other words, the discussion of whether the economy is approaching, nearing, or past its moment of “peak growth” for this economic recovery does not help us understand what these data are telling us. Firms cannot produce enough to fill customer orders, and inventories are being run down to fill the void.

“The Business Survey Committee panelists reported that their companies and suppliers continued to struggle to meet increasing demand,” said Timothy Fiore, chairman of the ISM’s manufacturing business survey committee.

“At the beginning of the third quarter, all segments of the manufacturing economy are experiencing near-record lead times for raw materials, persistent shortages of critical raw materials, rising raw material prices and difficulties in moving products,” added Fiore.

The story goes on

“Loss of workers, short-term downtimes due to a shortage of parts, and difficulties filling vacancies are still problems that limit the potential for growth in manufacturing,” he wrote.

As one business contact told ISM, “Business levels continue to show strong demand with no signs of yielding.” In addition, data released by IHS Markit on Monday suggests that manufacturing activity in the US has grown faster over the past month, with that index hitting a record high.

Michael Pearce, senior US economist at Capital Economics, said Monday the details of the ISM report suggest that supply restrictions, while still severe, are now easing.

“While the comments section again reflected widespread delivery problems and cost increases, the supplier delivery time index fell from 75.1 to 72.5,” wrote Pearce, “and the price paid index fell from 92.1 to 85.7, with the latter also falling “reflecting the recent decline in commodity prices” (June price index served as the record for the ISM range).

While a general spike in data appears to be growing from slightly declining headline data or sub-indices, there is no doubt that a demand-driven recovery that has overwhelmed global providers is proceeding apace.

And as this recovery progresses, economic data continues to show that the “on / off” button we hoped to flip in the spring with the introduction of COVID vaccines and the lifting of economic restrictions isn’t working that easily.

By Myles Udland, reporter and presenter for Yahoo Finance Live. Follow him at @MylesUdland

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What can be seen today

business

  • 10:00 a.m. ET: Factory orders, June (1.0% expected, 1.7% in May)

  • 10:00 a.m. ET: Durable goods orders, June final (0.8% expected, 0.8% in the form)

  • 10:00 a.m. ET: Non-defense capital goods orders excluding aircraft, June finals (0.5% in the previous print)

  • 10:00 a.m. ET: Non-defense capital deliveries excluding aircraft, June finals (0.6% in the previous print)

Merits

Pre-market

  • 6:25 p.m. ET: Eli Lilly (LLY) is expected to report adjusted earnings of $ 1.89 per share on revenue of $ 6.61 billion

  • 6:30 a.m. ET: Clorox (CLX) is expected to report adjusted earnings of $ 1.32 per share on revenue of $ 1.91 billion

  • 6:50 a.m. ET: KKR & Co. (KKR) is expected to report adjusted earnings of 86 cents per share on sales of $ 1.47 billion

  • 6:55 am ET: Under armor (UAA) is expected to report adjusted earnings of 6 cents per share on sales of $ 1.22 billion

  • 7:00 am ET: ConocoPhillips (POLICE OFFICER) is expected to report adjusted earnings of $ 1.13 per share on revenue of $ 10.24 billion

  • 7:00 am ET: Marriott International (TO DAMAGE) is expected to report adjusted earnings of 47 cents per share on sales of $ 3.16 billion

  • 7:00 am ET: Discovery (DISCOUNT) is expected to report adjusted earnings of 85 cents per share on sales of $ 2.98 billion

  • 7:30 a.m. ET: Warner Music Group (WMG) is expected to report adjusted earnings of 15 cents per share on sales of $ 1.19 billion

  • 8:00 a.m. ET: Ralph Lauren (RL) is expected to report adjusted earnings of 87 cents per share on sales of $ 1.22 billion

  • 8:00 a.m. ET: SolarWinds Corp. (SWI) is expected to report adjusted earnings of 21 cents per share on sales of $ 258 million

  • 8:30 a.m. ET: Nikola (NKLA) is expected to report adjusted losses of 30 cents per share on sales of $ 100,000

After hours

  • 4:00 p.m. ET: Devon Energy Corp (DVN) is expected to report adjusted earnings of 52 cents per share on sales of $ 2.24 billion

  • 4:00 p.m. ET: Caesar’s conversation (CZR) is expected to report adjusted losses of 4 cents per share on sales of $ 2.39 billion

  • 4:00 p.m. ET: Avis budget group (DARE) is expected to report adjusted earnings of $ 2.84 per share on revenue of $ 2.1 billion

  • 4:00 p.m. ET: Amgen (AMGN) is expected to report adjusted earnings of $ 4.09 per share on revenue of $ 6.45 billion

  • 4:05 p.m. ET: Akamai (MY BROTHER) is expected to report adjusted earnings of $ 1.39 per share on revenue of $ 846 million

  • 4:05 p.m. ET: Activision Blizzard (ATVI) is expected to report adjusted earnings of 75 cents per share on sales of $ 1.89 billion

  • 4:05 p.m. ET: Live Nation Entertainment (LYV) is expected to report adjusted losses of $ 1.18 per share on revenue of $ 527.5 million

  • 4:05 p.m. ET: Elevator (ELEVATOR) is expected to report adjusted losses of 22 cents per share on sales of $ 700.73 million

  • 4:10 p.m. ET: Kursra (DISH) is expected to report adjusted losses of 11 cents per share on revenue of $ 91.53 million

  • 4:10 p.m. ET: Match group (MTCH) is expected to report adjusted earnings of 51 cents per share on sales of $ 691 million

  • 4:15 p.m. ET: Western Petroleum (OXY) is expected to offset on an adjusted basis on revenue of $ 5.86 billion

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