The manufacturing economy is still humming along, making solid profits despite supply chain and labor headwinds. That’s good news for industrial stocks, even though investors are worried more about the Omicron variant of Covid-19 at the moment.
The Institute for Supply Management Purchasing Managers’ Index, or PMI—which gets released on the first business day of each month unless the New York Stock Exchange is closed—came in at 61.1, up from 60.8 from October. A level of 50 indicates that the manufacturing economy is growing. Above 60 is a very strong level.
The new orders portion of the index, which is a read on future demand, came in at 61.5, up from 59.8 in October. That’s another solid reading for investors to digest.
Overall, the report is good news for industrial stocks, although industrial stocks typically only react significantly when the PMI report is a big surprise. The November number isn’t a big surprise. It’s the continuation of a positive trend.
The Industrial Select Sector SDPR ETF (ticker: XLI) was up 1.8% in early Wednesday trading. Caterpillar (CAT) stock rose 1.9%. The PMI doesn’t hurt shares, but the overall market is bouncing after Tuesday’s Omicron-based selloff.
The S&P 500 and Dow Jones Industrial Average were up 1.2% and 1.5%, respectively, on Wednesday.
While the report looks good, manufacturers are still dealing with low inventories and labor issues. But things are looking up in those areas too.
“The U.S. manufacturing sector remains in a demand-driven, supply chain-constrained environment, with some indications of slight labor and supplier delivery improvement,” said Tim Fiore, ISM PMI survey chairman in the monthly release. It’s still tough to find workers and Covid-related absenteeism remains an issue, “however, [survey] panel sentiment remains strongly optimistic.”
The PMI pricing index is falling too, easing inflation concerns. The price component of the PMI hit 82.4 in November, down from 85.7 in October. A level of 50 indicates prices are rising, so 80 is very high. While prices have been an issue, profit margins are holding up.
“There are some industries that are struggling to pass higher costs through,” said Fiore, but he adds that, for the most part, prices have been passed through to the consumer. That means profit margins have held up. “It’s been a pretty profitable 2021.”
As for 2022, it’s too early to tell how things will turn out, but Fiore pointed out that manufacturers are a resilient bunch.
Write to Al Root at allen.root@dowjones.com
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