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BookmarkSkyrocketing Prices And Shortages
March 29 (King World News) – Peter Boockvar: Recovering from the weather shock in February, along with the previous factors of the need for inventory rebuilding that is getting clogged up with logistical issues and raw materials, in addition to getting prepared for further reopenings, the Dallas manufacturing index in March rose to 28.9 from 17.2 and well better than the estimate of 16.8.
New orders, backlogs, production, shipments, capital spending and inventories (though still below zero) all were up sharply m/o/m. To the ongoing supply problems, Delivery Time jumped to 31.2 from 9.5. This in turn led to prices paid and received rising to the highest levels since 2008. We also saw a rise in employment and a 12 pt jump in Wages and Benefits. It is the wage/benefit side that will be a key determinant in seeing how transitory or not the current price pressures we are seeing will be. The impact of generous unemployment benefits is in part being blamed for rising labor costs.
The overall 6 month outlook was little changed however as there still seems to be a lot of moving parts here. The revenue side is becoming more clear but the cost side is becoming less. Here are some comments on the cost challenges, including labor:
Chemical Manufacturing: “We are experiencing the real cost of inflation with much higher raw material and labor costs. We are passing along price increases where we can, but we are seeing marginal business go away. I am very concerned with the 6 month forecast and unable to meet deadlines.”
Primary Metal Manufacturing: “Business demand remains strong, but there’s a raw material supply shortage that hopefully will correct itself by the end of the 2nd quarter or first of the 3rd quarter.”
Fabricated Metal Manufacturing: “With the significant increase in demand, steel shortages and manufacturing/logistics capacities are limiting factors. We can do very little about steel shortages. Government transfer payments are making finding labor problematic.”
“We have a good backlog, but it is not going to be predictable for six months to a year out. Bank willingness to renew or add to our loan program has been problematic even though we have never been in default. The bank now wants to limit capital expenditures, including maintenance.”
Government Pay More For People To Not Work
Plastics and Rubber Products Manufacturing: “Order volume is steadily increasing, week by week. As such, we’ve begun hiring to fill vacancies caused by the layoffs we experienced in 2020, in addition to filling positions to assist with production shortfalls. As with every hiring cycle, we are having problems getting in applicants in general. The extension of unemployment benefits may be a cause for concern since in some cases the benefits plus the extra is more than what an employee makes in a week.”
Machinery Manufacturing: “We are seeing increased costs for raw materials and components. We have not yet evaluated the scope and size of the increases to determine if our prices must be adjusted. We will continue to accumulate data in the weeks to come.”
Computer and Electronic Product Manufacturing: “Demand continues to strengthen broadly. Peer lead times continue to stretch, and many are raising prices. I have not seen this dynamic in my 30+ years in the industry. Many peers are requiring 12-month noncancelable, nonreschedulable orders. I believe it is hard to know what you will require in March of 2022, for example, and that will likely lead to over-ordering.”
“Supply chain delays continue to plague the environment, which has caused delays leading to mismatched labor, inflated inventory and other generally increased costs. Efficiency has been lower the last few months. On one hand, there are positive signs of activity. On the other hand, we cannot count on accurate and timely delivery from suppliers, which is causing inefficiency internally. We can’t get what we need when we need it, and raw material costs and freight are rising and we now see wage pressure on the horizon. In these environments, some companies over-order or desire safety stock, which creates more strain in the short term, and then when the supply chain catches up and inventory stabilizes, those orders are pulled back.”
Transportation Equipment Manufacturing: “The recent stimulus package that extends unemployment benefits and increases payments is making it more difficult to hire production workers and is increasing wage pressure to hire and retain competent staff. We have been very successful hiring higher-paid professional positions, but we have had a very difficult time hiring competent labor positions below $20 per hour. We attribute this in part to extended unemployment benefits, which reduce the need for people to work (some have told us as much).”
Paper Manufacturing: “Our March increase was mainly due to catch-up from February’s lost week due to temperatures. The outlook is still positive at this time. We are seeing tremendous price increases in raw materials at this time. We are passing them on to unhappy customers due to the shortage of supply.
Food Manufacturing: “All of our raw-ingredient input costs, such as corn, cardboard boxes and plastics, have risen. Our electric cost has slightly risen as well. Our main costs are approximately 15 percent higher across the board than in December of 2020. Price inflation is here, and it has caused our organization to start raising wholesale product pricing to our clients. The vast majority of our clients are wholesale buyers. They, in turn, will need to raise prices to stay in business.”
Misc Manufacturing: “All raw materials used in our production—brass, steel, stainless steel and aluminum—have experienced large increases in price and extended lead times. What once had a 60-day lead time now has an 11-month lead time. Supply disruption and skyrocketing prices have slowed our sales.”
