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Tuesday, March 2, 2021
Production activity increases to a three-year peak
The US economic recovery continues to be driven by production.
On Monday, IHS Markit and the Institute for Supply Management published data on production activity for February, and these reports show that the sector is developing at the fastest pace in several years.
ISM’s manufacturing PMI recorded a record of 60.8, the highest in three years and the fastest since the start of the pandemic recovery. The IHS Markit reading reached 58.6, the second best reading for this index in 1
And while reading the title of the two reports leads to slightly different historical superlatives, both readings say the same thing about the U.S. manufacturing sector right now – business just can’t handle that recovery. And at the moment there is a noticeable pressure in both pricing and delivery of goods.
The ISM price index rose to 86 last month, the highest level since June 2008, while the cumulative order index reached its highest level in 17 years. The ISM Supplier Index also reached 72, up from just 76 in April, a multi-decade high. The IHS Markit report indicates the longest recorded increase in delivery time, while entrance prices have been rising at the fastest pace since 2011.
Taken together, these readings clearly show that US manufacturers face higher costs, while outstanding orders pile up and components for finished products remain delayed.
A set of circumstances that suggest an inflationary environment awaits us until a stable recovery is ready to be fully deployed if supply disruptions can be reduced.
“The manufacturing economy continued to recover in February,” said Tim Fiore, chairman of ISM’s manufacturing business research committee. “Problems with absenteeism, short-term shutdowns to rehabilitate facilities and difficulties in hiring workers remain challenges and continue to cause tensions that limit the growth potential of production. The optimistic mood of the panel increased, with five positive comments for each cautious comment, compared to the 3-ratio 1 to January. “
Chris Williamson, chief business economist at IHS Markit, said the data “suggest that the U.S. manufacturing sector is close to fully recovering production lost to last year’s pandemic.”
Williamson added that “the renewed surge of optimism suggests that the recovery must go much further. Business expectations for the coming year have jumped to a level exceeded only once in the last six years, supported by a cocktail of incentives and hopes for recovery after COVID as life continues to return to normal amid vaccine release. “
And the comments of industry leaders in the ISM report vividly illustrate the current challenge of the economy to navigate in “some good, other bad” environment.
“Things are out of control now,” said a contact in the electrical equipment, appliances and components sector, which is currently under pressure from a global shortage of chips. “Everything is a mess and we are seeing a large shortage.”
“Prices are rising and deadlines are rising with each passing day,” said another contact in the engine room. “As long as business and the backlog remain strong, the supply chain will stretch a lot. [thin] to cope. “
And as economic data continues to surprise upwards, it now appears that the biggest challenge for growth in 2021 will be whether industrial supply chains can meet demand. A good problem to have after a decade of worrying about secular stagnation and the end of the demand-driven growth cycle.
From Miles abroad, reporter and anchor for Yahoo Finance Live. Follow him in @MylesUdland
What to know today
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4:05 PM ET: Box Inc. (BOX) is expected to report adjusted earnings of 17 cents per share on revenue of $ 196.5 million
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