FDI November 2021

Key Points:

FDI ticks up moderately in November. The seasonally adjusted November FDI (57.6) saw a modest improvement vs. December (56.1) as better seasonally adjusted sales trends offset slightly weaker employment levels. Pricing remained stable sequentially with the m/m and y/y FDI Pricing Indexes mostly unchanged. While past commentary focused on freight delays, container shortages, and shortages of imported material, labor seemed to be the biggest irritant this month, cited by nearly all respondents.

FLI continued to moderate. The seasonally adjusted FLI came in at 64.0, contracting slightly m/m for the third consecutive month. The FLI has been on a gradual downward descent since June as supply chain issues and labor challenges led to less rosy forecasts of future activity. Relative to October, the FLI was pressured this month by lower employment levels and a slightly less positive six-month outlook for participants. On the latter point, the six-month outlook now reflects just 36% of respondents anticipating higher activity levels over the next six months compared to today – down significantly vs. a clear majority of 80%+ in February/March 2021. That said, product shortages in the face of continued strong demand could simply lengthen out the cycle, resulting in the FDI remaining nicely in growth territory for some time to come.

Employment dipped in November. The FDI employment index came in at 63.6 compared to 65.2 last month. Multiple respondents indicated hiring remains challenging despite significant efforts. As one participant summarized, “Hiring is tougher than ever, with very little replies on Help Wanted ads.” The broader economy saw a similarly sluggish job market in November, albeit off a solid October report. The economy added just 210,000 jobs compared to economist expectations for +500,000. Hard-hit customer-facing roles in areas such as stores, restaurants, bars and hotels were especially soft (retail saw a net loss of jobs in November), although manufacturing and transportation & warehousing were positive at +31,000 and +50,000, respectively. Unemployment fell to 4.2% from 4.6%, which was a new pandemic low but is still slightly elevated relative to the pre-pandemic level of 3.5%. The labor force participation rate increased but remains soft at just 61.8%.

Familiar themes of supply chain disruption, with more acute labor headwinds. A material improvement in the state of the supply chain did not occur in November. Said one respondent, “Still having delayed deliveries with both overseas and domestic product. Customers still not too encouraged in increasing our sales due to uncertainty in the market and inability to get other product to continue production on a daily basis!” Frustration with these lingering issues continues to build: “This supply chain problem is getting old.” Labor challenges were seemingly more prevalent and more impactful this month than in prior months. As one participant said, “A disappointing month due to limited human labor …. We’ll be back up to full speed in December.” Another respondent commented, “Slight slowdown, believe many orders have already been placed ahead of time based on the current situation with material shortages, lead time, overseas port backlogs, etc. Hiring is tougher than ever, with very little replies on Help Wanted ads.” Lastly, one participant noted supplier price increases continue “due to material shortage, labor shortage and delayed shipments from raw material suppliers.”

Fastenal’s +14.1% overall October daily sales growth beat our +10.8% estimate. Safety sales were +2.9% y/y but further normalized as a percentage of sales towards pre-pandemic levels. Excluding safety products, underlying sales were +17.2% y/y, also nicely above our +14.3% estimate and normal seasonality. Turning to fasteners specifically, FAST’s fastener sales were +23.2% y/y, consistent with generally strong FDI/FLI readings. Looking at November specifically, we model November overall daily sales +5.3% y/y, reflecting safety -3.6% and non-safety (including fasteners) +7.8%. November sales will be reported on December 6.