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Morning Brief: Demand is outstripping supply

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Myles Udland breaks down Wednesday’s Morning Brief, which details how the manufacturing sector continues to see growth despite the difficulty in meeting demand due to the lack of resources in the global supply chain.

Video Transcript

JULIE HYMAN: Yesterday we got some manufacturing data that was pretty hot, as we saw in a couple of different readings. We saw prices paid also going higher. And of course, all of this continues to speak to the supply and demand equation. Myles, we also heard though, interestingly, from Caterpillar this morning saying that some of the component supply chain issues were starting to ease a little bit. But really, that's the first thing I think I've heard from a CEO in recent days that anything was sort of changing on that front.

Yeah, I mean, that comment-- along with what we've seen in the price of lumber, Julie-- are really the only signs so far that some of these pressures are starting to abate. But in yesterday's ISM Manufacturing PMI, a very closely watched indicator of the state of the manufacturing economy-- and this is really the input side of all of the stuff that we buy in our homes and in our daily lives, no matter what it might be. We continue to see, or the report continued to surface, pressures along the supply chain and pressures in terms of getting products, getting inputs to customers in anything like a timely manner.

There was a comment within the release itself-- record-long lead times, widescale shortages of critical basic materials, rising commodity prices, and difficulties in transporting products are continuing to affect all segments of the manufacturing economy. And I think what's interesting is in each of those, we have the chip shortage can be part of-- you can consider that a basic material. Commodities-- we've been on the oil story.

Lead times is really this surge in visibility from businesses to say, oh, I can invest now because I am seeing the vaccine rollout. I am seeing my customers come back. I can now count on the future after having had a year in which no planning was viable.

And then the transportation side of it-- you know, there was a conversation a couple of weeks ago about the lumber problems. And it was like, you can't find a railcar to take some of this stuff to where you need to go. Forget about getting the sawmills running and getting the trees actually cut down to conforming size. Once you even have that, you couldn't get it on a railcar. This is a month ago.

And you can't find a truck to take the kind of freight that you need. You can't get a port slot. There are boats sitting outside of the Port of LA, outside Port Elizabeth here in New Jersey that can't be unloaded because you don't have the longshoremen to actually take the stuff off the boats. There are not enough empty boats going back to Asia to continue that shipping line. So all of these problems really coming all at the same time, and this report another sign of that.

And I think the angle that I tried to take at the end of this post is, look, this is a problem. This is certainly a challenge to work through. It is absolutely fueling what we're seeing on the price side. And we'll see how long these inflation pressures do indeed last. But out of the possible futures for the economy that we were facing last year when we were in the third month of what ended up being the worst quarter for the US economy-- really, in history, in modern history since World War II-- this is a pretty good outcome. These are very good problems to have at this point in the cycle.

And no, things aren't perfect. And no, the economy isn't working exactly how we would choose. But to be dealing with pressures of how strong everything is, and the problem is there's too much demand-- again, I struggle to find a scenario that would be preferable to this one, rather than everything working perfectly-- which, as we all know, no one's under the-- no one's so naive as to think that would ever happen. So again, I think this is still a preferable outcome based on how things could have gone a year ago.

JULIE HYMAN: I like optimistic Myles, or as optimistic as Myles is going to get. I like it.

MYLES UDLAND: This is-- I have a branding problem, because everyone thinks I'm not optimistic. And truly, I mean, I am not a cynical person. And it's my fault that people think that's true, because I'm just not a cynic.

JULIE HYMAN: No, you're not, clearly.

BRIAN SOZZI: I don't like optimistic Myles. I like other Myles. I'm just saying.

JULIE HYMAN: You can be optimistic and still be skeptical at times, certainly.