Economic Data Roundup (03/03/2021)

3/3/21 8:00 AM

Gauges of activity in the U.S. goods-producing sector continue to heat up. For example, four of the Federal Reserve’s five key regional indexes improved in February, and all remained comfortably above the expansion/contraction threshold. A broader measure from the Institute for Supply Management similarly rose to 60.8 last month, much better than anticipated and matching the 3rd-highest reading of the past 30 years. Under the hood every subcomponent of the index firmed in February except for measures of inventories and imports. A separate gauge from IHS Markit also signaled a broad expansion in activity in February, and the report’s authors noted that “Particularly encouraging is a marked improvement in demand for machinery and equipment, hinting strongly at strengthening business investment spending. However, new orders for consumer goods showed the strongest back-to back monthly gains since the pandemic began, suggesting higher household spending is also feeding through to higher production.”


It is also worth pointing out that when compared to overseas metrics, the U.S. appears to be experiencing a much faster and sustained rebound in business activity than many other countries. This should not be surprising because America’s fiscal response to the crisis has been one of the largest relative to GDP. Further, the U.S. is now a global leader in terms of the vaccine rollout, so it will in turn benefit from being further along the reopening process. Many analysts are as a result scrambling to revise their economic growth projections higher, e.g. the Atlanta Fed this week raised its Q1 GDP forecast to 10.0 percent, nearly double the January estimate of 5.2 percent. There is of course a high likelihood that much of the recent strength in the manufacturing arena will moderate in the months ahead, but this could be more than offset by a rebound in the larger U.S. service-providing sector, which can finally join in on the economic recovery once the lingering business activity restrictions are permanently lifted (assuming no vaccine efficacy or supply hiccups going forward). Another recent development that could reverse is the apparent spike in input costs reported by manufacturers. So far this appears more like a transitory issue related to longer delivery times, factory capacity constraints, and other supply obstacles that should be alleviated as social distancing rules ease. Comments from managers in the February ISM survey generally support such observations:

  • "The coronavirus pandemic is affecting us in terms of getting material to build from local and our overseas third- and fourth-tier suppliers. Suppliers are complaining of [a lack of] available resources [people] for manufacturing, creating major delivery issues." (Computer & Electronic Products)
  • "Supply chains are depleted; inventories up and down the supply chain are empty. Lead times increasing, prices increasing, [and] demand increasing. Deep freeze in the Gulf Coast expected to extend duration of shortages." (Chemical Products)
  • "Steel prices have increased significantly in recent months, driving costs up from our suppliers and on proposals for new work that we are bidding. In addition, the tariffs and anti-dumping fees/penalties incurred by international mills/suppliers are being passed on to us." (Transportation Equipment)
  • "We have experienced a higher rate of delinquent shipments from our ingredient suppliers in the last month. We are still struggling keeping our production lines fully manned. We anticipate a fast and large order surge in the food-service sector as restaurants open back up." (Food, Beverage & Tobacco Products)
  • "Overall capacities are full across our industry. Logistics times are at record times. Continuing to fight through shipping and increased lead times on both raw materials and finished goods due to the pandemic." (Fabricated Metal Products)
  • "Prices are going up, and lead times are growing longer by the day. While business and backlog remain strong, the supply chain is going to be stretched very [thin] to keep up." (Machinery)
  • "Things are now out of control. Everything is a mess, and we are seeing wide-scale shortages." (Electrical Equipment, Appliances & Components)
  • "Labor shortages at suppliers are affecting material deliveries and prices." (Plastics & Rubber Products)
  • "We have seen our new-order log increase by 40 percent over the last two months. We are overloaded with orders and do not have the personnel to get product out the door on schedule." (Primary Metals)
  • "Prices are rising so rapidly that many are wondering if [the situation] is sustainable. Shortages have the industry concerned for supply going forward, at least deep into the second quarter." (Wood Products)



Sources: Econoday, ISM, IHS Markit, Haver Analytics, FRBSL

Post author: Charles Couch