Good news from the U.S. economy. Manufacturing activity surged to its highest level in nearly 14 years in early January, but at the same time bottlenecks in the supply chain caused by the coronavirus pandemic are driving up prices. And a rise in inflation is coming in the months ahead.
Other data show an unexpected increase in sales of previously owned homes in December. Manufacturing and the housing market are helping to anchor the economy. But the pandemic is causing labor shortages at construction sites and factories, which could erode some of the strength in the manufacturing and housing sectors.
Data firm IHS Markit said its flash U.S. manufacturing PMI accelerated to a reading of 59.1 in the first half of this month, the highest since May 2007, from 57.1 in December.
Prices for steel, aluminum, lumber and other materials are rising in response to higher order volumes. Commodity supply chains are now clogged with orders, causing some producers to add weekend hours and overtime for employees. Orders that took a week or two to fill during the summer now require six to eight weeks, according to manufacturers coping with extended wait times for essential supplies.
The strength in manufacturing helped to lift business activity. The survey’s flash composite PMI Output Index, which tracks the manufacturing and services sectors, rose to a reading of 58.0 early this month from 55.3 in December. While its flash services sector PMI increased to 57.5 from 54.8 in December, the pace of new business growth softened at the start of 2021.
The services sector, which accounts for more than two-thirds of U.S. economic activity, has borne the brunt of the pandemic, with severe disruptions to restaurants, bars and other businesses that attract crowds. The survey’s measure of services industry employment fell to a six-month low in early January.