Boockvar on Manufacturing Rebound
The following is from Peter Boockvar:
US manufacturing continues with its rebound
The July ISM manufacturing index rose 2.3 pts m/o/m to 55.6 and that was better than the estimate of 53.9. This is the 7th month in a row above 50 as the US manufacturing sector, globally too, finally gets out of its 3 year recession.
New orders at 56.7 are up from 56 in June while backlogs were higher by 4.5 pts to 55. Inventories were above 50 for a 2nd month at 51.2 and this increase over the past four months reflects I continue to believe the stockpiling that has gone on since the conflict in the Middle East began as buyers get ahead of both supply and price issues. Customer inventories remain low though at 40.7 and remaining well below 50.
Export orders rebounded back above 50 at 53 from 48.5. Positively too, employment was up by 3.1 pts m/o/m to 52.8, the first time above 50 since September 2023. Breadth wise though, just 6 of 18 reported an increase in jobs with 6 cutting jobs and 6 seeing no change.
Supply issues remain with the ‘Supplier Deliveries’ component at 58.9 well above 50. Prices paid dropped 1.9 pts to 71.1 but still 21 pts above 50 with 14 of 18 industries saying they paid higher prices. The one paying less was in petroleum and coal.
Breadth improved a touch with 15 industries reporting growth vs 14 in June. Only one contracted, that being chemical products vs three in the month before. The balance saw no change. This was said by a company in chemical products, “Definitely a downturn within several of our business units, mainly the consumer products division. High freight costs, both for truck and ocean, and longer lead times are concerning. Pricing was moving downward until the Iran war started again.”
Bottom line, as seen with the comments below, most of the economic enthusiasm comes from those selling into the data center construction, along with aerospace & defense. We also have the inventory restocking. Of note too was the paper company saying that Asian customers are buying their paper from someplace else because of tariffs.
Nothing market moving though and bond yields still down on the day with the 4.67% on the 10 yr being a key level (vs 4.68% as of this writing) as it was the May peak. Prior to that watch 4.79% as it was the January 2025 peak and of course 5% before then that we touched for a day in October 2023 and which I believe we will be retesting again.
“We are seeing a very opportunistic and reactive marketplace. If shortage items become available, we opportunistically buy. Some customers are reducing inventory; others are pulling forward demand. As many customers that are slowing down, an equal number are growing. It looks like a lot of shuffling and shifting market share.” [Chemical Products]
“We continue to operate in a favorable demand environment driven by growth in the semiconductor, AI, advanced packaging, and high-performance computing markets. Recent company reports indicate strong sales growth and continued investment in manufacturing capacity, technology and customer-support capabilities. This scenario supports a positive business outlook and creates opportunities to leverage increased purchasing scale across the enterprise.” [Computer & Electronic Products]
“Now that it seems the buildout of AI infrastructure globally is nearing real activation, products going into data centers are at full procurement and manufacturing ramp-up. Thus, demand for our semiconductor end products and connectivity (power, networking and photonics) is booming. Similarly, defense is at an all-time high, with most of our product orders going to these two industries. Order volumes for medical, industrial and consumer products are markedly lower.” [Machinery]
“Aerospace and defense demand continues to be strong and growing, based on business backlogs. Competing for scare supply — electronics, certain critical minerals and other categories — is challenging on-time fulfillment for our supply chains. This is expected to get worse with co-dependent sectors also remaining strong and restocking challenges for automotive electronics.” [Transportation Equipment]
“Continued tariffs on products utilized in our product lines are being monitored by the business, which is working to mitigate or limit tariff risk. Geopolitical risk, especially in the Middle East, pertaining to commodity and energy markets remains a concern. There has been some increased cost and transit time for rerouted shipments due to conflicts in the Red Sea, Strait of Hormuz and Suez Canal.” [Transportation Equipment]
“Business is still solid; we will increase revenue by 3 percent to 5 percent. We are considering foreign steel purchases for early next year because domestic steel mills are getting greedy.” [Fabricated Metal Products]
“No normalcy in sight in the world of metals. It makes me yearn for the coronavirus pandemic chaos, which was more manageable than whatever this is that we are in. At least business is better; however, the components of good business are not. Sharp pricing downturns in aluminum will make things more interesting, as supply levels will prevent those decreases from taking hold across the board. Getting customers to understand that is not always easy.” [Primary Metals]
“The pricing volatility and lead-time extensions in this market are arguably worse than the pandemic era. During COVID-19, we saw a surge of price hikes and inventory buy-ups, which caused constraints that eventually leveled out. We are seeing nothing but consistent upward trends for both pricing and lead times that show no signs of slowing down. Specifically, 5-percent to 25-percent price increases for printed circuit board assembly components and 15-percent to 45-percent increases for bare boards are negatively impacting customer demand outlook into next year. This isn’t sustainable.” [Electrical Equipment, Appliances & Components]
“Our customers in Asia continue to procure elsewhere to avoid paying a tariff. While the Iran war was paused, it was terrific to see fuel prices (and delivery costs) falling steadily. Now that skirmishes have resumed, we expect fuel to rise again.” [Paper Products]
ISM Mfr’g
Inventories
Prices Paid
Employment
