December 22, 2021

Is the US Past “Peak Bottlenecks”?

At a time when supply shortages are “on the front page”, and Omicron threatens to exacerbate infrastructure bottlenecks, the ISM manufacturing survey is sending a message in the other direction. The latest reading for new orders is at the low end of its 17-month range, while the reading for inventories is close to its 37-year high. Firms have been desperate to accumulate inventories, but this could shift to unintended inventory accumulation if new orders dry up. It is also possible that the rising Prices Paid component (shown inverted) will undermine overall manufacturing activity readings. This supports our view that surprises will be on the side of lower inflation and economic growth 2022, increasing the odds that 10-year Treasury yields will test 1% and the Fed will pivot back to dovish sometime next year.