American manufacturing is roaring back: Morning Brief

In Tuesday’s Morning Brief, Myles Udland writes about surge in U.S. manufacturing sector and the road of recovery from the impacts of COVID-19. Yahoo Finance’s Julie Hyman, Myles Udland, and Brian Sozzi break it down.

Video Transcript

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JULIE HYMAN: Let's talk about that Yahoo Finance Morning Brief. You see there the fun little cartoons of Myles and Sam Ro, who take turns writing it. Myles wrote it this morning. And Myles, you wrote about something that actually broke during our show yesterday, which was manufacturing data.

We've talked a lot about-- on the show about how we have transitioned away from services to manufacturing during the pandemic, but there was this expectation that we'll transition back to services. It's not necessarily happening yet, as those manufacturing numbers yesterday showed. They were stronger than expected and continuing to show strength.

What also was notable, however, is prices paid. And we've also talked a lot about supply chains and how things are sort of gummed up right now, especially given supply-demand imbalances in certain areas. That means prices are going higher. So what are some of your takeaways from-- from all of that?

MYLES UDLAND: I mean, I think my overall view on the report, as you mentioned, Julie, inflation is a major concern for investors right now. You look at what's happening with the bond market, you can see stock market trying to figure out how much that's going to matter to them specifically. I mentioned that prices paid input has a large commodities component. So the price of oil has been up. There's an impulse there.

But another data point that we actually discussed slack during the show yesterday was the lead time, delivery lead time which is plummeting, which indicates that lead times are going up, which indicates people can't actually get stuff made that has been ordered by customers. And so we're in this weird position right now where we're trying to figure out exactly how to square this circle, if that makes sense, right. We have all this demand, an inability to create the supply, pricing pressures at the same time.

Some of it is demand-related. Some of it is COVID supply chain-related. Some of it is commodity supercycle-related. But it's a very interesting moment for the manufacturing economy, which, as you mentioned, has been the real leader here out of the pandemic. And it's a real reorientation of how growth has kind of gotten done over the last couple of decades.

BRIAN SOZZI: Myles, how-- how severe is-- is the inflation you're seeing in these reports?

MYLES UDLAND: I mean, look, I think it's-- it's difficult-- and you got to go through economists' notes yesterday. It's difficult to tease out the relationship between pricing for finished goods, pricing for inputs, and pricing on commodities and how that is all impacting prices. It is definitely fair to say that the manufacturing data we got yesterday suggests pricing pressures broadly within the goods part of the economy are the highest they've been in at least a decade, if not more.

And so, you know, Sozzi, we've talked a lot about how that translate into consumer prices, how does that change things for the Federal Reserve. I think all that remains to be seen. But within the industrial production supply chain, thinking about that broad idea, there are no doubt pricing pressures at a level that we have not seen in at least a full economic cycle. These pressures never really came up after the financial crisis. This is really sort of more like peak oil housing market kind of stuff that we saw back in the mid-aughts.

JULIE HYMAN: And of course, now the question again becomes, is this just transitory, right? Because if we do indeed see that transition as expected back to people taking vacations and spending their money on different things, you know, are people going to be taking cruises instead of buying refrigerators, for example, then that gives credence to the idea that it is transitory, that we will start to see the demand side of that supply-demand equation start to abate a little bit in the latter half of the year, which in theory should cause a little bit of an ease up on the prices. But we'll see how all of that actually plays out in real life as opposed to theoreticals at this point.