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Economic Indicators

Worsening shortages, high prices restrain U.S. manufacturing activity

By Lucia Mutikani

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Worsening shortages, high prices restrain U.S. manufacturing activity
© Reuters. FILE PHOTO: Autonomous robots assemble an X model SUV at the BMW manufacturing facility in Greer, South Carolina, U.S. November 4, 2019. REUTERS/Charles Mostoller/File Photo

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. manufacturing activity slowed in October, with all industries reporting record-long lead times for raw materials, indicating that stretched supply chains continued to constrain economic activity early in the fourth quarter.

The Institute for Supply Management (ISM) survey on Monday also hinted at some moderation in demand amid surging prices, with a measure of new orders dropping to a 16-month low. Still, demand remains strong as retail inventories continue to be depressed, which should keep manufacturing humming.

According to the ISM, “companies and suppliers continue to deal with an unprecedented number of hurdles to meet increasing demand.” The government reported last week that the economy grew at its slowest pace https://www.reuters.com/business/us-economy-slows-sharply-third-quarter-weekly-jobless-claims-new-19-month-low-2021-10-28 in more than a year in the third quarter because of widespread shortages tied to the COVID-19 pandemic.

“Stress in U.S. supply chains isn’t abating, lending downside risk to our forecast for GDP growth in the near term and a clear upside risk to the forecast for inflation,” said Ryan Sweet, a senior economist at Moody’s (NYSE:) Analytics in West Chester, Pennsylvania.

The ISM’s index of national factory activity slipped to a reading of 60.8 last month from 61.1 in September. A reading above 50 indicates expansion in manufacturing, which accounts for 12% of the U.S. economy. Economists polled by Reuters had forecast the index would fall to 60.5.

The ISM reported 26 commodities were in short supply in October, some for as long as 13 straight months. That compared to 24 in September.

The economy is struggling with shortages across industries as global supply chains remain clogged. Supply constraints were worsened by a wave of coronavirus infections driven by the Delta variant over the summer, especially in Southeast Asia. Congestion at ports in China and the United States was also causing delays in getting materials to factories and retailers.

The motor vehicle industry has been the hardest hit amid a global semiconductor shortage. Transportation equipment manufacturers in the ISM survey said they had diverted chips “to our higher-margin vehicles and stopped or limited the lower-margin vehicle production schedules.”

Other industries are also hurting. Manufacturers of computer and electronic products reported “extreme delays” and that “getting anything from China is near impossible.” Food manufacturers said “rolling blackouts in China starting to hurt shipments even more.” Makers of electrical equipment, appliances and components said though demand remained strong, production continued “to be held back by supply chain issues.”

The ISM survey’s measure of supplier deliveries increased to a reading of 75.6 last month from 73.4 in September. A reading above 50% indicates slower deliveries. Economists and businesses expect supply chains could remain tight through 2022.

Longer waits for materials meant high inflation at the factory gate persisted. The survey’s measure of prices paid by manufacturers accelerated to 85.7 from a reading of 81.2 in September. Prices increased for 48 commodities last month, with only prices for wood falling. Prices for products like steel have increased for 15 consecutive months.

These higher costs are being passed on to consumers which, together with surging wage growth, is raising concerns that high inflation could be more persistent rather than transitory as Federal Reserve Chair Jerome Powell has repeatedly argued. The government reported on Friday that wage growth in the third quarter was the strongest on record.

Fed policymakers are due to meet on Tuesday and Wednesday. The U.S. central bank is expected to announce that it will start reducing the amount of money it is injecting into the economy through monthly bond purchases.

Stocks on Wall Street were trading higher. The dollar fell against a basket of currencies. U.S. Treasury yields rose.

‘SHIFTING PARADIGM’

The ISM survey’s forward-looking new orders sub-index dropped to 59.8 last month, the lowest reading since June 2020 when COVID-19 lockdowns were in effect, from 66.7 in September. Factories have plenty of unfinished work.

“One interpretation of this dramatic fall could be manufacturers facing a shifting paradigm that accepts supply constraints as a new reality,” said Kurt Rankin, an economist at PNC Financial (NYSE:) in Pittsburgh, Pennsylvania.

“Demand does not appear to be abating, raising the question of whether businesses’ patience and profitability potential is becoming exhausted and that new inventory management techniques and the promise of fewer goods on offer could be emerging.”

Factories hired more workers, with employment expanding for a second straight month. Though manufacturers said they were still struggling to find workers, there were hopeful signs.

According to the survey, “an increasing percentage of comments noted improvements regarding employment, compared to less than 5% in September.” It also noted that “an overwhelming majority of panelists indicate their companies are hiring or attempting to hire.”

This, combined with a jump in consumers’ perceptions of the labor market last month, suggests employment gains accelerated in October after the economy created the fewest jobs in nine months in September. Worker shortages, however, remain a constraint. There were 10.4 million unfilled jobs at the end of August.

The Labor Department is scheduled to publish its closely watched employment report for October on Friday.

A separate report from the Commerce Department on Monday showed construction spending dropped 0.5% in September, which was blamed on shortages and Hurricane Ida in late August.

Still, the spending composition was not as weak as the government had assumed in its advance third-quarter GDP estimate last week. That led some economists to anticipate that third-quarter GDP growth could be revised up to about a 2.2% rate from the published 2.0% pace when the government releases its second estimate later this month.

Economic Indicators

Italy says can exceed 3.1% growth target for 2022 despite energy prices

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© Reuters. FILE PHOTO: People walk along the Galleria Vittorio Emanuele II shopping mall in Milan, August 25, 2015. REUTERS/Flavio Lo Scalzo

ROME (Reuters) – Italy’s Treasury said the country’s economy could grow this year by at least as much as Rome’s official target of 3.1% set in April, despite the negative impact of surging energy prices.

Italy grew 0.1% in the first quarter from the previous three months, national statistics bureau ISTAT said last month, revising up a preliminary estimate of a 0.2% contraction.

This left Italy with so-called “carryover” growth of 2.6% this year, assuming gross domestic product was flat in the remaining three quarters, ISTAT said.

Announcing on Monday the bond issuance programme for the third quarter, the Treasury said it expected growth to accelerate in the second quarter, compared with the first three months.

This still makes it plausible to reach or exceed the 2022 growth target of 3.1%, it said in its debt issuance report.

Prime Minister Mario Draghi’s government in April revised down its 2022 economic growth forecast to 3.1% from a 4.7% projection made last September.

The government has budgeted since January more than 33 billion euros ($34.90 billion) to soften the impact of sky-high electricity, gas and petrol costs.

($1 = 0.9456 euros)

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Economic Indicators

French consumer confidence falls more than expected in June

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© Reuters. A woman shops at a fruit and vegetables shop in Paris, France, June 10, 2022. REUTERS/Sarah Meyssonnier

PARIS (Reuters) – French consumer confidence fell more than expected in June, hitting a near nine-year low as concerns about the economic outlook surged in the face of high inflation and political uncertainty, a survey showed on Tuesday.

The INSEE official statistics agency said its consumer confidence index fell to 82 in June from 85 in May and the lowest level since July 2013.

A Reuters poll of 14 economists had an average forecast of 84 with the lowest estimate for 83.

Although households’ concerns about future inflation remained well above the long-term average, they eased in June for the third month in a row.

However, household sentiment about the general economic outlook continued to worsen, falling to the lowest level since May 2020 when France was in the second month of its first and most strict COVID-19 lockdown.

While surging inflation has stressed households in recent months, France’s political situation has added to uncertainty about the economic outlook since President Emmanuel Macron’s party lost its ruling majority in legislative elections this month.

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Economic Indicators

Peru truckers, farmers to strike over fuel and fertilizer costs

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© Reuters. FILE PHOTO: People walk next to parked trucks during a national transportation strike against fuel prices, in Lima, Peru March 18, 2021. REUTERS/Angela Ponce/File Photo

By Marco Aquino

LIMA (Reuters) – Peru’s truckers and some farm groups will go on strike on Monday after failing to reach agreements with the government seeking measures to reduce the impact of steep global price rises of fuel and fertilizer, sector leaders said on Sunday.

Union leaders met on Friday and Saturday with government representatives, with demands including considering freight transport a “public service” that would reduce costs and curb competition from truckers from neighbor countries.

“We are firm in plans to strike with all our bases nationwide,” the leader of the heavy load haulage and drivers union Marlon Milla told radio station RPP. The union has 400,000 cargo transport units in 14 of the 25 regions of the country.

High global fuel prices linked to Russia’s invasion of Ukraine have stoked unrest in Peru, the world’s No. 2 copper producer, while shortages of fertilizer have raised fears over food supply with the government struggling to secure shipments.

The government of leftist President Pedro Castillo, who has seen his popularity tumble since taking office last year, has taken measures to curb the rising cost of living, but the annual inflation rate remains at around 8%, its highest level in 24 years.

Some farming unions also announced strikes on Monday, in protest at the rise in fertilizer prices and shortages.

Latin American leaders are grappling to bring down spiraling prices despite major interest rate hikes. Trucking protests over fuel costs have hit Argentina while Ecuador is being roiled by protests in part linked to gas prices. [L4N2YB27W]

“The dialogue has not been exhausted, we are in a permanent session of ministers to avoid protest,” Justice Minister Félix Chero told reporters on Sunday. The government is offering subsidies for road tolls and fertilizer costs.

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