An increase in new orders allowed the US manufacturing sector to grow at its fastest pace in three years in February, with factories benefiting from a shift in consumer spending.
Manufacturing in the United States grew in February at the fastest pace in three years with the arrival of a sharp increase in new orders.
The Institute for Supply Management (ISM) reported on Monday that its indicator of manufacturing activity rose to 60.8% last month, 2.1 percentage points above the January level of 58.7 %.
This is the best performance since February 2018. Any reading above 50 indicates expansion in the manufacturing sector. The 60.8% reading last month matched a similar reading in February 2018 and the level for those months was the highest since a 61.4% reading in May 2004.
The survey found an increase in optimism, with five positive comments for every cautious comment – compared to a 3-to-1 ratio in the January survey.
Timothy Fiore, chairman of the ISM manufacturing survey panel, said the survey shows a recovery is underway as manufacturers find ways to deal with supply chain shortages and lingering problems coronavirus pandemics such as the short-term closures of some factories to disinfect facilities.
Manufacturers are also benefiting from a shift in spending, with Americans spending money on homes and other projects rather than dining out or risking indoor shopping, Fiore said.
“They buy all kinds of things that the manufacturing economy is building,” he said. “As long as parts of the service sector are closed, Americans spend on durable goods.”
The new orders index rose to 64.8%, from 61.1% in January, while the employment index stood at 54.4%, from 52.6% in January, according to the report. .
However, manufacturers are struggling with lengthening component delivery times at many factories. Michael Pearce, senior economist at Capital Economics, said this partly reflected “the increasing global shortages of electronics and especially semiconductors.” He said these shortages could dampen the recovery of manufacturing output in the coming months.
Last week, President Joe Biden signed an executive order intended to boost manufacturing jobs by strengthening U.S. supply chains for advanced batteries, pharmaceuticals, critical minerals and semiconductors.
A growing global shortage of semiconductors for auto parts is forcing major auto companies to halt or slow down vehicle production just as they were recovering from plant closures linked to a pandemic.
“The comments in the report also make it clear that these shortages go far beyond simple semiconductors, with companies across industries reporting shortages and issues with suppliers meeting demand,” Pearce said.
Other analysts said they believe manufacturing will be able to overcome supply chain issues.
“Strong consumer demand for goods, increasing business investment, a booming housing market and global economic growth all support the US manufacturing sector,” said Gus Faucher, chief economist of PNC.