Morning Report: Manufacturers see shortages lasting through 2022

Vital Statistics:

 LastChange
S&P futures4,6071.2
Oil (WTI)83.420.41
10 year government bond yield 1.56%
30 year fixed rate mortgage 3.30%

Stocks are flattish this morning as the Fed begins its 2-day FOMC meeting. Bonds and MBS are up small.

Manufacturing decelerated in October, according to the ISM Manufacturing Survey. We saw a big decline in the index for new orders, while the Prices Index rose substantially. “Business Survey Committee panelists reported that their companies and suppliers continue to deal with an unprecedented number of hurdles to meet increasing demand. All segments of the manufacturing economy are impacted by record-long raw materials lead times, continued shortages of critical materials, rising commodities prices and difficulties in transporting products. Global pandemic-related issues — worker absenteeism, short-term shutdowns due to parts shortages, difficulties in filling open positions and overseas supply chain problems — continue to limit manufacturing growth potential. However, panel sentiment remains strongly optimistic, with four positive growth comments for every cautious comment. Panelists are fully focused on supply chain issues in order to respond to the ongoing high levels of demand.”

The biggest complaint has been the inability to get products out of China. Rolling blackouts are exacerbating the problems. The report has some individual responses from companies in different industries. Many see the shortages continuing through 2022.

Home prices rose 18% in September, according to CoreLogic. CoreLogic sees the home price appreciation slowing to 2% over the next year, however. “The pandemic led prospective buyers to seek detached homes in communities with lower population density, such as suburbs and exurbs. As we head into 2022, we expect some moderation in the current pattern of flight away from urban cores as the pandemic wanes.”

Construction spending fell 0.7% MOM in September, according to the Census Bureau. Residential construction fell 0.4% MOM and rose 7.8% YOY.

The number of loans in forbearance fell again last week to 2.15%, according to the MBA. “For the first time since March 2020, the share of Fannie Mae and Freddie Mac loans in forbearance dropped below 1 percent,” said Mike Fratantoni, MBA Senior Vice President and Chief Economist. “A small decline for this investor category was matched by similarly small declines for Ginnie Mae and portfolio/PLS loans. Forbearance exits slowed at the end of October to the slowest pace since late August. With so many borrowers having reached the end of their 18-month forbearance term, we expect a steady pace of exits in November.”

Author: Brent Nyitray

In the physical sciences, knowledge is cumulative. In the financial markets, it is cyclical

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