Demand for goods still is increasing rapidly, leaving manufacturers struggling to keep up. Admittedly, the total orders balance overstates just how much demand increased in November, because it is not seasonally adjusted and nearly always falls in October, before bouncing back in November.
Nonetheless, our seasonally adjusted version of the total orders balance rose 11 points in November to reach its highest level since records begin in 1977. Unfortunately, the relationship between the total orders balance and the official measure of manufacturing output is quite weak, because manufacturers are asked to compare orders to “normal levels”, and right now manufacturers cannot fulfil all orders.
Even so, manufacturing output probably still has scope to rise further in Q4, as formerly-furloughed staff are recalled and as manufacturers invest to enhance productivity. Even if orders weaken next year, perhaps as restocking demand fizzles out, production will be supported by the large work backlogs that have accumulated this year.
Meanwhile, resilient demand is enabling nearly all producers to hike their selling prices. Indeed, the output price expectations balance rose to +67—its highest level since May 1977—from +59 in October, consistent with core producer output price inflation rising to nearly 8.0% in January, from 6.5% in October. Core goods CPI inflation, therefore, still looks set to rise further over the next six months, helping to push the headline rate above 5% in the spring.