Toilet Paper Production is the Bright Spot in the Economy
Of the 18 manufacturing categories tracked by the ISM, only two were in positive territory.
Inquiring minds are diving into the latest ISM Manufacturing Report in search of bright spots. There were two.
Up: Paper Products; and Food, Beverage & Tobacco Products.
Down: Printing & Related Support Activities; Furniture & Related Products; Transportation Equipment; Textile Mills; Fabricated Metal Products; Nonmetallic Mineral Products; Machinery; Plastics & Rubber Products; Electrical Equipment, Appliances & Components; Petroleum & Coal Products; Wood Products; Miscellaneous Manufacturing; Computer & Electronic Products; Primary Metals; and Chemical Products.
- “Production stopped, other than to make hand sanitizer for those in need.” (Chemical Products)
- “The food processing B2B space remains steady. We are weathering the storm. There is a fortunate increased need for packaged foods. Softening is showing through in some products that find their way into food service and lodging.” (Food, Beverage & Tobacco Products)
- “Our packaging business is starting to see signs of a slowdown in May after two strong months into COVID-19.” (Paper Products)
Comment #3 implies the shortage of paper products, including toilet paper and Kleenex may be over.
The lead image is from the Grist article How coronavirus creates empty shelves and toilet paper shortages.
ISM April 2020 Numbers
- The PMI® indicates a level of manufacturing-sector contraction not seen since April 2009, with a strongly negative trajectory.
- Demand contracted heavily, with the (1) New Orders Index contracting at a very strong level, again pushed by new export order contraction, (2) Customers’ Inventories Index approaching a level that is considered a negative for future production, and (3) Backlog of Orders Index strongly contracting, in spite of a lack of production during the period.
- Consumption (measured by the Production and Employment indexes) contributed negatively (a combined 36.5-percentage point decrease) to the PMI® calculation, with activity dramatically contracting due to plant closures and lack of demand. Inputs — expressed as supplier deliveries, inventories and imports — strengthened again due to supplier delivery issues that were partially offset by continuing imports sluggishness.
- The delivery issues were the result of disruptions in domestic and global supply chains, driven primarily by supplier plant shutdowns.
- Prices continued to contract (and at a faster rate in April), supporting a negative outlook.
Price Deflation Coming Up
Point #5 above points to price deflation.
However, many people are concerned that all the Fed printing is sure to lead to high inflation.
I'm not one of them.
Bubbles are Inherently Deflationary
When asset bubbles burst, debt deflation results accompanied with a bit of price deflation as well.
It's the debt deflation that really matters.
For discussion, please see Inflation or Deflation? Collapse in Demand Trumps Supply Shocks.
Mike "Mish" Shedlock