Economic Data Roundup (01/06/2021)

1/6/21 8:00 AM

The U.S. manufacturing sector ended 2020 on a much stronger footing than it did the first half of the year. The Federal Reserve’s various regional manufacturing gauges, for instance, were all above zero in December, signaling an overall expansion in activity, whereas in the earlier part of 2020 these metrics were deep in negative (contractionary) territory. Further, IHS Markit’s nationwide manufacturing PMI climbed to 57.1 in December, implying the fastest improvement in operating conditions since 2014. Surveyed managers attributed much of the continued strength to “the release of pent-up demand,” but some respondents acknowledged that pandemic-related headwinds in recent months likely “dampened output growth at the end of 2020.” More importantly, producers of machinery and equipment reported “sustained strong demand” in December. This suggests that companies are encouragingly still increasing their investment spending, something they would not do if year-ahead optimism was declining.


The report’s authors attributed the apparent forward confidence to the anticipation that “vaccine roll-outs will help drive a further recovery in 2021.” ISM’s headline manufacturing index similarly jumped in December to the highest reading since August 2018, helped by another solid gain in new orders (customer demand). One potential negative worth pointing out is that in both the Markit and ISM data there was evidence that the manufacturing sector is continuing to experience a supply shock. However, since much of this and other production constraints appear to so far be due mainly to COVID-related disruptions, i.e. “absenteeism, short-term shutdowns to sanitize facilities, and difficulties in returning and hiring workers,” any upward price pressures (inflation) should ease if the vaccine rollout proceeds smoothly. It is also worth noting that the rebound in the goods-producing sector does not appear to be isolated to the U.S. because as of this writing over 80 percent of the global manufacturing PMIs ended 2020 in expansion territory, the broadest level of manufacturing strength seen since September 2018. For some additional perspective, highlighted comments from managers in the December ISM survey can be found below:

  • "Sales are now slightly above pre-COVID-19 sales." (Machinery)
  • "Current business outlook is strong through the first quarter of 2021. We are anticipating 20 percent growth in sales for 2021." (Fabricated Metal Products)
  • "Sales are now exceeding pre-COVID-19 levels, but uncertainty remains through the winter months while COVID-19 is still rampant." (Miscellaneous Manufacturing)
  • "Business is stronger than expected, with higher demand for many products. Volatility continues due to the very persistent pandemic and associated risks." (Electrical Equipment, Appliances & Components)
  • "Suppliers are having difficulty finding and retaining labor leading to supply constraints." (Plastics & Rubber Products)
  • "COVID-19 outbreaks are causing supply chain issues for Tier-1 and Tier-2 suppliers. More work needs to ensure suppliers keep us in the loop with any problem in their supply chain. But end-customer demand for products is keeping production and future outlook positive." (Transportation Equipment)
  • "COVID-19 is affecting us more strongly now than back in March. Vendors/service suppliers unable to maintain levels of service due to employee shortages. Logistic issues also hurting us due to coronavirus-related problems." (Food, Beverage & Tobacco Products)



Sources: IHS Markit, Institute for Supply Management, FRBSL

Post author: Charles Couch