July 2021 Market Informer

U.S. Factory Activity Index Rises To Record High In June –Markit

A measure of U.S. factory activity climbed to a record high in June, but manufacturers are still struggling to secure raw materials and qualified workers, substantially raising prices for both businesses and consumers. Data firm IHS Markit said on June 23 its flash U.S. manufacturing PMI rose to a reading of 62.6 this month. That was the highest since the survey was expanded to cover all manufacturing industries in October 2009 and followed a final reading of 62.1 in May.

The survey was conducted between June 10 and June 22. Economists polled by Reuters had forecast the index slipping to 61.5. A reading above 50 indicates growth in manufacturing, which accounts for 11.9% of the U.S. economy.

The strength in manufacturing bolsters economists’ expectations for double-digit growth in the second quarter. Demand shifted to goods from services as the COVID-19 pandemic kept Americans at home and is remaining robust even as vaccinations and trillions of dollars in relief money from the government allow the economy to reopen more broadly. But supply is struggling to cope with the demand surge, leading to huge backlogs of uncompleted work as well as sky-rocketing prices for raw materials and finished products, which are feeding into higher inflation.

Federal Reserve Chair Jerome Powell told lawmakers on June 23 that inflation has “increased notably in recent months,” which he attributed in part to the supply bottlenecks and the rebound in spending as the economy continues to reopen. Powell expressed optimism that inflation will subside “as these transitory supply effects abate.” IHS Markit said “average supplier delivery times lengthened to the greatest extent on record.”

The survey’s measure of prices paid by manufacturers rose to the highest level since the series started. It said “firms raised their selling prices at a quicker rate in an effort to pass on these higher costs.” The survey’s new orders measure slipped, noting also that “firms struggled to find staff or entice workers back to employment.”

Though IHS Markit’s flash services sector PMI dropped to 64.8 from a reading of 70.4 in May, it was still the second highest since data collection began in October 2009. Businesses in the services sector, which accounts for more than two-thirds of U.S. economic activity, worried about rising inflation and the inability to find qualified labor and people willing to work.

There are a record 9.3 million job openings. About 9.3 million people are classified as officially unemployed.

With services activity moderating, overall business activity cooled this month. The survey’s flash composite PMI output index, which tracks the manufacturing and services sectors, fell to 63.9 from a final reading of 68.7 in May.

Source: Reuters, 06.23.2021

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