This is really important news. Please take two minutes to read this.
We just found out that manufacturing slumped to an 11 month low in December. The Institute for Supply Management reported it’s manufacturing index activity reading fell to 58.7 in December, 2.4 percent below the consensus forecast of 60.5.
Here was Timothy R. Fiore’s explanation as to why manufacturing dipped:
“The U.S. manufacturing sector remains in a demand-driven, supply chain-constrained environment, with indications of improvements in labor resources and supplier delivery performance. Shortages of critical lowest-tier materials, high commodity prices and difficulties in transporting products continue to plague reliable consumption.”
So, why is this a big deal? This is a big deal because the rate of manufacturing is meant to keep up with future demand. It’s simple supply and demand, the backbone principle of our economy. Mr. Fiore did not say manufacturing dipped because manufacturers projected a limited future demand. It’s not because consumers want less product. Manufacturing dipped because supply chain issues and commodity prices have risen making it impossible for manufacturers to meet their targets.
There is a ripple effect when manufacturing dips below consumer demand. There were less products manufactured in December than needed to meet the needs of the country. This means we will see an even bigger spike in prices as demand outpaces supply.
Anyone who shops at their local grocery stores and supermarkets or anywhere else for that matter sees that products are in short supply, shelves are emptier than usual, and prices have gone up. The manufacturing index is a sign that it’s about to get a lot worse. In our next newsletter we will explain how the Fed’s reaction is going to complicate the ability to correct this economic situation and ultimately make the problem worse.
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