Economic Data Roundup (02/03/2021)

2/3/21 8:00 AM

Incoming reports on the U.S. manufacturing sector remained encouraging during the first month of 2021. For example, all of the Federal Reserve’s regional gauges continued to signal an overall expansion in activity in January. IHS Markit’s nationwide manufacturing PMI similarly rose to 59.2 last month, representing the most substantial improvement in operating conditions since 2007. Much of the strength was due to firmer client demand and a marked increase in new orders, with the latter rising at the sharpest pace in roughly six-and-a-half years. The report also noted that demand from both domestic and foreign customers picked up significantly in January, implying that it is not just America participating in the rebound in factory production.


A separate gauge from the Institute for Supply Management was a bit more mixed in January but overall continued to signal a level of activity that is already back in line with pre-COVID averages. Markit’s researchers added that “Consumer demand has improved while businesses are investing in more equipment and restocking warehouses, preparing for better times ahead as vaccine roll outs allow life to increasingly return to normal over the course of 2021.” However, both the Markit and ISM gauges continued to signal a sharp rise in input prices in January, which could show up in broader inflation metrics in the coming months as businesses pass on some of the extra expense to customers. As explained earlier, though, this is largely due to lingering activity restrictions that are disrupting supply chains and lengthening delivery times, and such price pressures should therefore fade as the economy fully reopens, assuming of course a successful vaccine rollout. Comments from managers in the January ISM survey generally support such observations:

  • "Supplier factory capacity is well utilized. Increased demand, labor constraints and upstream supply delays are pushing lead times. This is more prevalent with international than U.S.-based suppliers." (Computer & Electronic Products)
  • "Very strong demand with limitations in supply to meet increased demand." (Transportation Equipment)
  • "Business is very good. Customer inventories are low, with a significant order backlog through April. Supply base is struggling to keep up with demand, disrupting our production here and there. Raw material lead times have been extended. COVID-19 continues to cause challenges throughout the supply chain. Huge logistics challenges, especially in getting product through ports and in getting containers. We are seeing significant cost increases in logistics and raw materials." (Machinery)
  • "January 2021 started with strong orders for plastic components in auto, electrical and other sectors. The industry outlook is optimistic. Looking at investing in new equipment for anticipated demand later this year. Reshoring is taking hold, with new customer potential." (Plastics & Rubber Products)
  • "Labor continues to be one of our largest challenges." (Food, Beverage & Tobacco Products)
  • "Business is improving, but we are still struggling with a shortage of available labor." (Primary Metals)
  • "Our current business demand is going way past pre-COVID-19 levels." (Fabricated Metal Products)



Sources: Econoday, IHS Markit, ISM, FRBSL

Post author: Charles Couch