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Elevated ISM points to a post-pandemic boom

February 02, 2021

Graph depicting average of the ISM Manufacturing Index in the first year of economic expansions

Source: Institute for Supply Management

The ISM manufacturing index slipped modestly in January, coming in at 58.7 from a prior 60.5. All five components were again in expansion territory, with the new orders and production indices both holding above 60.0 for a seventh straight month. In addition, the anecdotal responses were virtually all upbeat, with supply chain issues and labor shortages recurringly cited as the main impediments to an even faster pace of growth.

The growing supply/demand imbalance evident throughout this report is another strong hint that a one-off spike in the inflation rate is drawing near – note that the prices paid index hit a nearly ten-year high 82.1 last month – but the overarching story here is that the factory sector and the economy at large are well set up to boom as the pandemic runs its course. There would be plenty of reason to believe in such a scenario even if the data flow had remained in a COVID-driven slump, but the fact that much of the economy has already performed quite well through the worst of the crisis adds a great deal of confidence to the post-pandemic outlook. It is telling that the ISM, in particular, has thus far moved largely in line with the long-term trend in this recovery despite the very substantial ongoing headwinds. It should be clear by now where the most likely path lies once those headwinds finally abate.
There are always risks, of course. In this case, there is the obvious potential for new COVID variants to spread more quickly than vaccines can be deployed against them, but, even after accounting for the lingering uncertainties associated with the virus, the downside for the year ahead is among the more limited in recent memory.

Daily Trivia

What country’s 200-unit banknote appropriately matches the Pantone color “Frozen Fjord”?

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What did Thomas Jefferson want explicitly restricted in the Bill of Rights, calling them “the sacrifices of the many to the few”?

Answer:

monopolies

Sources

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