Continued strong demand for goods — no doubt capturing no small amount of what would’ve been spent on services absent COVID — is keeping the manufacturing space humming along.
This morning’s release of the December ISM Manufacturing Survey results showed improvement in 8 of the 10 areas measured (new orders, production, employment, supplier deliveries, inventories, customer’s inventories, prices and backlog orders). The two that showed slightly worse month-on-month results were new export orders and imports.
Interesting how in a country where 19 million folks are still receiving some form of unemployment assistance, manufacturers cite difficulties getting folks back to work:
“The manufacturing economy continued its recovery in December. Survey Committee members reported that their companies and suppliers continue to operate in reconfigured factories, but absenteeism, short-term shutdowns to sanitize facilities and difficulties in returning and hiring workers are causing strains that are limiting manufacturing growth potential.”
While I suspect a good number would-be-manufacturing-workers are reluctant due to COVID-fear, I also suspect that unemployment benefits, in some cases, that meet or exceed (or perhaps come close to) their employment income has them less than eager.
Also worth noting is what the report implies about our inflation thesis going forward.
“Commodities Up in Price”
Aluminum (7); Aluminum Products (3); Brass Products (2); Copper (7); Corrugate (3); Corrugate Boxes (2); Crude Oil; Electrical Components; Electronic Components; Freight (2); Isocyanates; Labor — Temporary; Linerboard; Lumber (6); Ocean Freight; Oil-Base Lubricants; Packaging Supplies; Paper Products; Personal Protective Equipment (PPE) — Gloves; Phosphates; Plastic Resins (4); Polyethylene Resins (3); Polyurethane; Polypropylene (6); Polyvinyl Chloride (3); Solvents; Soybean Products (3); Steel (5); Steel — High Carbon; Steel — Cold Rolled (4); Steel — Hot Rolled (4); Steel Products (4); Steel — Scrap; Steel — Stainless (2); and Wood — Pallets.
Commodities Down in Price
The Weber-Fechner law was developed by nineteenth-century psychologists Ernst Weber and Gustav Fechner to explain how subjects react to different physical stimuli. In a series of experiments,
Weber asked blindfolded men to hold weights. He would gradually add more weight to the weights the men were already holding, and the men were supposed to say when they felt an increase.
It turned out that if a subject started out holding a small weight—just a few grams—he could tell when a few more grams were added.
But if the subject started out with a larger weight, a few more grams wouldn’t be noticed.
It turned out that the smallest noticeable change was proportional to the starting weight. In other words, the psychological effect of a change in stimulus isn’t determined by the absolute magnitude of the change, but rather by its change relative to the starting point.
Have a nice day!