In the June report it was projected that the annual rate of increase would be 8%. This latest report reflects a rate of 6%. We noticed the large jumps in steel (4.1%) and copper (9.5%) as well as the increasingly important effect that the “weaker dollar” is going to have on imported items. As we remember from economics class, the weaker dollar makes our exported products less expensive resulting in (hopefully) a healthier export market; but, at the same time makes our purchases (imports) from other countries more expensive. This is not a comment on the overall or longer-term impact of the relative health of our economy caused by a weaker dollar. This is mentioned just to point out that the weaker dollar by definition causes our cost of imported goods to go up and most of us are most immediately affected by what it costs us to buy something.
Something else that is not reflected in this report is this issue of inventories. As we have seen recently, inventories are getting low – near a bottom. A couple of quick, practical examples: RTU’s and other HVAC equipment is no longer “off the shelf”. It’s now taking 3-6 weeks longer to get RTU’s that previously took a phone call. Also, electrical switch gear is beginning to be a longer-lead item. Panels and switch gear that was a 1-2 week delivery is now taking twice that. What does that mean? That means those manufacturers are going to have to start producing again – and instead of these items being shipped quickly out of inventory, they are now going to have to be manufactured – thus causing longer lead times and most likely higher prices.
Thanks for reading.
The Sykes Team
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