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Supply Issues Continue To Drag on Growth

ISM data sharpens attention on bottlenecks holding back economy.
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While some analysts see light at the end of the tunnel, supply chain woes continue to disrupt the economy. 

The Action Alerts Plus team has been looking at the issue more closely. 

“The October ISM Manufacturing Index decelerated modestly to 60.8% from 61.1% in September," the team noted recently  on Real Money. "The report continued to depict robust demand, but manufacturers and suppliers continue to struggle to meet increasing demand levels due to a range of factors that includes record-long raw material lead times, shortages of basic materials, transportation difficulties, worker absenteeism and difficulty filling positions."

The ISM Manufacturing Index measures the activity of businesses across the economy. It has two main components. The manufacturing component measures the activity of companies which produce physical goods, while the services component measures firms which produce intangible services (for example law firms and accountants).

To produce its index ISM surveys hundreds of businesses across the country. It asks about activity such as how many supplies the company has ordered, how many employees the company has or has hired, how much new business the company did, and many more factors that go into running and operating a business. The goal of this survey is to get a sense of overall business activity, everything that goes in and out the door.

When the index goes up, this suggests that companies across the country are generally doing more than they did last month. When it declines, it suggests that business activity in general has slowed down.

AAP reports that employment and logistics remain the two biggest bottlenecks to business activity overall. Demand remains high; consumers want the products and services that businesses can produce. Those firms still just struggle to get the labor and raw materials that they need to meet those demands.

“With reports that the world's largest shipping hubs are still contending with elevated congestion levels as containers pile up at seaports from Singapore to Greece's Piraeus, we suspect supply chain bottlenecks will continue to be a thorn in the side of the global economy and companies at least through the end of 2021," the team added.

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