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Tuesday, March 2, 2021
Manufacturing activity hits three-year high
The US economic recovery continues to be led by the industry.
On Monday, IHS Markit and the Institute for Supply Management released February manufacturing activity data, with these reports showing the industry growing at the fastest pace in several years.
ISM’s manufacturing PMI recorded a reading of 60.8, the highest reading in three years and the fastest since the start of the pandemic recovery. The IHS Markit reading was 58.6, the second best reading for this index in the past 11 years; only the January reading was better. Readings above 50 for any index indicate expansion within the sector, while readings below 50 indicate contraction.
And while reading the headlines in both reports results in slightly different historical superlatives, both readings say the same thing about the U.S. manufacturing sector now – companies simply cannot keep up with this recovery. And remarkable pressures exist in both price and delivery of goods now.
The ISM price index rose to 86 last month, the highest level since June 2008, while the order backlog index reached its highest level in 17 years. The ISM supplier delivery index also reached 72, a reading only surpassed by 76 in April, which served as a high for several decades. The IHS Markit report indicated the biggest increase in delivery waiting times ever recorded, while input prices increased at the fastest rate since 2011.
Together, these readings make it clear that manufacturers in the United States face higher costs, while backordered orders pile up and components for making finished products remain behind.
A set of circumstances that suggest that an inflationary environment is upon us, while a robust recovery is ready to be fully unleashed if supply interruptions are able to subside.
“The manufacturing economy continued to recover in February,” said Tim Fiore, chairman of the ISM manufacturing business research committee. “Problems with absenteeism, short-term stoppages to sanitize facilities and difficulties in hiring workers continue to be challenges and continue to cause tensions that limit the growth potential of manufacturing. The feeling of the optimistic panel has increased, with five positive comments for each comment cautious, compared to 3 proportion-to-1 in January. “
Chris Williamson, chief business economist at IHS Markit, said that these data “suggest that the US manufacturing sector is close to fully recovering production lost from the pandemic last year.”
Williamson adds that “a renewed wave of optimism suggests that the recovery still has a long way to go. Business expectations for next year have jumped to a level only surpassed once in the past six years, driven by a cocktail of stimuli and hopes of post-COVID recovery as life continues to return to normal amid vaccine launches. “
And the comments of industry executives in the ISM report colorfully illustrate the economy’s current challenge of navigating in a “good, bad” environment.
“Things are now out of control,” said a contact in the electrical equipment, home appliances and components sector that is being pressured by a global chip shortage. “Everything is a mess and we are seeing a shortage on a large scale.”
“Prices are rising and delivery times are increasing every day,” said another contact in the machinery area. “Although the business and order backlog remain strong, the supply chain will be very stretched [thin] to continue.”
And, as economic data continues to positively surprise, it now appears that the biggest challenge for growth in 2021 will be whether industrial supply chains will be able to keep up with demand. A good problem for having spent a decade worrying about secular stagnation and the end of demand-driven growth cycles.
In Myles Udland, reporter and anchor for Yahoo Finance Live. Follow him on @MylesUdland
What to know today
Economy
Earnings
Pre-market
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6:30 ET: Target (TGT) expected to report adjusted earnings of $ 2.49 per share on revenue of $ 27.43 billion
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07:00 ET: Kohl’s (KSS) expected to report adjusted profit of 98 cents per share on revenue of $ 5.90 billion
Post-market
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4:05 pm Eastern Time: Nordstrom (JWN) expected to report adjusted earnings of 12 cents per share on revenue of $ 3.49 billion
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4:05 pm Eastern Time: Box Inc. (CASHIER) expected to report adjusted earnings of 17 cents per share on revenue of $ 196.5 million
Headlines
UK stocks rise due to strong housing and food data [Yahoo Finance UK]
Zoom in quarterly sales increases 369% as work at home extends to early 2021 [Yahoo Finance]
Jack Ma loses title of China’s richest man after undergoing Beijing scrutiny [Reuters]
‘Roaring Kitty’ no longer has a financial broker license: filing [Reuters]
Yahoo Finance Highlights
J&J CEO: ‘We are doing this for the long term’
The lack of disaggregated data hinders the economic recovery of black communities
‘We have always been good at choosing niche markets’: CEO of Rocket Lab
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