On Monday, March 1, the Institute for Supply Management (ISM) announced that the U.S. manufacturing ISM Purchasing Managers’ Index increased to 60.8 in February 2021 from a year earlier, the highest in three years since February 2018 and above expectations of 58.6 and the previous value of 58.7 in January.
This is the ninth consecutive month that the U.S. ISM manufacturing index has been in expansion and indicates the ninth consecutive month of growth for the U.S. economy after falling into contraction from March to May 2020. The index has averaged 54 over the past 12 months, with the previous higher reading of 61.4 recorded in May 2004.
In terms of key subdivision data.
The production index improved 2.5 points to 63.2 in February, the ninth consecutive month of expansion and the eighth consecutive month above the 60 round figure, returning to pre-Epidemic levels, having hit a near 10-year high in December last year since at least January 2011, thanks to continued factory inventory restocking and an uptick in meeting demand.
The new orders index rose 3.7 points to 64.8, also marking the ninth consecutive month of expansion and the eighth consecutive month above 60, having hit its highest since January 2004 at 67.5 in December.
Despite still facing rising absenteeism and a shortage of skilled workers, the employment index improved 1.8 points to 54.4, the third consecutive month of expansion to the highest since June 2019. Some analysts say this will be a positive for U.S. nonfarm payrolls in February.
It is worth noting that inflationary pressures are emerging. The price paid index rose 3.9 points to 86%, the ninth consecutive month in expansionary territory and the highest since May 2008 (when it recorded 88.1), breaking the high since April 2011 set by the previous value in January.
The Supplier Delivery Index rose 3.8 points to 72, the highest since last April, representing a faster decline in the pace of ringgit deliveries. ISM said the twin challenges of transportation and labor continue to constrain suppliers’ output growth and dampen it more than in the previous month.
In addition.
The backlog of orders index rose 4.3 points to 64, the eighth consecutive month in expansionary territory and the last all-Time high since data were recorded in January 1993, with an all-time high of 66.5 recorded in April 2004.
The inventory index fell into contraction territory for the first time in five months, dropping 1.1 points to 49.7. The customer inventory index was “too low” for the 55th consecutive month and fell to a record low of 32.5, all of which are favorable indicators for future manufacturing output growth.
New export orders rose 2.3 points to 57.2, expanding for the eighth consecutive month and growing at a faster pace. The import index fell 0.7 points to 56.1, also expanding for the eighth consecutive month, reflecting continued growth in U.S. factory demand and interest in replenishing inventories.
Timothy Fiore, chairman of the American Institute for Supply Management’s Manufacturing Committee, noted that indicators of demand, consumption and inputs in the U.S. manufacturing sector all recorded strong growth, and industry representatives surveyed were more optimistic, with 5 optimistic comments for every 1 cautious comment, compared with 1:3 in January:.
“Sixteen of the 18 tracked industries reported growth, with printing and related support activities, and petroleum and coal products being the only manufacturing industries to report contraction. However, labor woes for surveyed companies and their suppliers will continue to limit manufacturing and the economy, and will remain a major impediment to production growth until employment levels and plant operations return to normal throughout the supply chain.”
Industry representatives surveyed were most concerned that shortages of certain key materials, such as lumber and semiconductors, are pushing up prices and, in some cases, limiting production. This could lead to increased Inflation and even hinder economic recovery, according to the analysis. An executive at a wood products manufacturer said, “Prices are rising so fast that many are wondering if this is sustainable.”
Zerohedge, a financial blog known for its venom, said the U.S. manufacturing PMI continues to be pushed up by record delays in the supply chain, highlighting “the risk of stagflation in the U.S. economy.
For example, in addition to the ISM supplier delivery index near record highs, IHS Markit statistics for February U.S. manufacturers faced the longest supplier delivery times in history since data collection began in May 2007.
This can only indicate severe supply chain disruptions under a sudden outbreak, and cannot be interpreted as a sign of improving working conditions as it usually is.
What’s more, the new orders index for the U.S. manufacturing sector stayed relatively behind compared to the price sub-index, which surged to a 12-and-a-half-year high, while international oil price levels were still at a high of $140 back in 2008.
Market risk appetite rose significantly after the release of the nominally positive data. All three major U.S. stock indices rose more than 2%, with the Dow running ahead, up 2.14%. Bitcoin is back above the $49,000 mark, up more than 11% in 24 hours and back up nearly $6,000 from its daily low.
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