Economic data in the US and abroad slowed in March. We believe this is the pause that refreshes. Manufacturing capacity and supply chain constraints have become too extreme for production to meet demand. Limited labor and material supplies continue to elevate delays in shipments and vendor deliveries. This summary from the 3-28-18 Markit PMI report on Austria summed up what we see in our own manufacturing business, in the US and around the globe: “Supply chains remained under intense pressure in March, as delivery times for inputs ordered lengthened to the third-greatest extent in the survey history. This was despite the slowest growth of purchasing activity in nearly a year.”The recent spat of data showing slowdowns in manufacturing in the US and Europe does NOT mean the economy is slowing. Instead the economy is having growing pains.

As the Texas Oil and Gas output hit new record highs, we see supply constraints and Steel tariff induced uncertainty slowdowns in manufacturing. These quotes by businesses provide some context: In Oil and Gas – “We have been hiring at a brisk pace, and the only thing restricting our growth is the availability of labor.” “Service companies are overworked, and delivery of equipment services is more uncertain as utilization outstrips availability.” In manufacturing we hear – “Steel tariffs may put a damper on our business because of the increase in the price of finished goods and shortage of raw material.” Tariff uncertainty has impaired manufacturers planning and purchases near term, but longer term remains buoyant.

The industrialized economies are all experiencing the same aging demographics of limited workforces to provide the supply for the current expansion cycle. After years of capacity reductions, our current GDP and production demand has the ingredients for a much faster pace of growth that is currently capped by severe and secular supply capacity impediments. Investors should remain confident that this cycle can extend further until either materials pricing accelerate much faster or capacity exceeds demand. Currently the global supply chain is severely strained, unable to meet rising demand. We view the March pullback in the economy as a time for supply to begin catching up to red hot demand and an opportunity to pick up stocks on strong pullbacks with the general market down 10%.