Why economic reflation has only just begun


    Petursson stressed the importance of examining the underlying aspects of manufacturing such as backlog, incoming orders and inventory to determine what is affecting the direction of the overall index level. The backlog was 64% in February, up 4.3 percentage points from January, and is at the highest level in the history of the PMI.

    He said, “This high level of backlog should come as no surprise given the supply chain disruptions resulting from Covid lockdowns last year, China-US trade tensions and more recently due to Texas weather issues and congested ports in California.

    “The residues range from sawn timber to semiconductors to almost everything in between. For example, the shortage of semiconductors is forcing some companies like Toyota, Honda and Samsung to stop car production in some plants. “

    Another complication of the supply chain is likely to be the sharp surge in demand as consumers emerge from the lockdown with excessive savings and a desire to spend. While Americans have 250% more savings as a percentage of disposable income compared to January 2020, the inventory-to-sales ratio as measured by the Federal Reserve Bank of St. Louis is near the all-time low last hit in 2011.

    Petursson said: “This low rate should lead to sustained higher levels of production, an improved economic environment and stronger corporate earnings growth. Our team often uses Mark Twain’s quote: “History doesn’t repeat itself, but it often rhymes.”


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