FDI October 2021

Key Points:

FDI sees m/m improvement. The seasonally adjusted October FDI (56.1) improved from last month’s 54.2 amid better selling momentum (the non-seasonally adjusted sales index improved despite a slight downtick in the seasonally adjusted index) and higher employment levels. Pricing picked up modestly as the proportion of respondents reporting higher pricing m/m was 73% compared to 71% last month. Key issues respondent commentary focused on included raw material shortages (especially stainless steel), freight costs (which one respondent said was 4x the normal cost), and potential additional shipping congestion heading into the holiday season.

FLI decreases slightly again. The seasonally adjusted FLI came in at 64.5, contracting m/m for the second consecutive month. This was attributable to a slight uptick in both customer and respondent inventory levels (bearish for potential future restocking/demand), although inventory levels remain very low in absolute terms, particularly at the customer level. The six-month outlook was essentially unchanged, with 42% of respondents expecting activity levels to be higher six months from now (unchanged m/m). That said, product shortages in the face of continued strong demand could simply lengthen out the cycle, implying the FDI could remain in growth mode for much longer.

Employment slightly improved in October. The FDI employment index came in at 65.4 vs. 54.8 last month, suggesting some loosening m/m in the very tight labor market. Fewer respondents indicated employment levels were below seasonal expectations (September 26% vs. October just 6%). Reflecting this, one participant said, “On the employee side we are finding more people coming in to apply for open positions vs September and before.” The broader economy saw a similarly improved job market in October. The economy added 531,000 jobs compared to economist expectations for +450,000. Leisure and hospitality led the growth, adding 164,000 jobs, as COVID cases declined. Unemployment fell to 4.6%, beating expectations (4.7%), but still slightly elevated relative to the pre-pandemic level of 3.5%.

Supply chain remains challenging for all participants. Respondents largely did not see a material improvement in the state of the supply chain in October. Said one respondent, “Deliveries not improving. Distributors all searching for the same parts, vanishing inventory levels. No end in sight!” Echoing this, another participant said, “Raw material deliveries still problematic. Wire vendors continue to push deliveries out into 2nd quarter 2022, especially on stainless steel.” Another respondent commented, “Slow supply chain is a real challenge in purchases & receiving goods import & domestic made.” One respondent did indicate some easing in inventory held in transit but was wary of potential upcoming transportation issues around the holidays: “Inventory that has been lost in transit purgatory has finally begun to show up. Attention must be paid to demand trends and managing inventories moving forward, with the challenges mainly pertaining to continued shipping congestion through the holiday and CNY season.” Demand commentary, however, remains positive: “Sales are incredible. Up almost 40% YTD over last year and almost 30% from 2019.”

FCH SourceFinder shines. Survey respondents who participate in the FCH Sourcing Network broadcast RFQ system known as SourceFinder added bonus sales during the month, reporting a noticeable increase in the average value of inquiries, along with an uptick in volume.