Manufacturing Might Be Swallowing Its Own Tail

by: Karl Denninger

The November Manufacturing "ISM Report on Business" states: "Economic activity in the manufacturing sector expanded in November for the 16th consecutive month, and the overall economy grew for the 19th consecutive month, say the nation's supply executives."

Yeah, okay. Anecdotes? Here's a good one, from one of the survey's respondents in the paper products category: "Business continues to improve; however, rising material prices are eroding margin. Increases to the consumer are inevitable in early Q1 2011."

Just remember: There's no inflation!

Well, that's interesting. Prices paid remains way up there, with a slight drop from last month -- but still way, way over 50. Customer inventories continue to contract while supplier inventories are expanding faster, which tells me that the end side (sellers) are being a bit more realistic ... and the back-up into the manufacturing side is going to be amusing if the sales don't materialize soon.

Production is falling off, suggesting that inventories are causing people to back off, but as yet it is not materially translating into employment. It will.

And, while it's good that the trend continues to be positive, one had better pay attention to that inventory disparity. If it continues (and with the margin compression damage, there's no reason to believe it won't) sales had better pick up -- and soon.