An operator stacks heavy gauge steel brace used for industrial workbench leg at Tennsco’s factory in Dickson, Tennessee, U.S. February 17, 2021.
Tennsco | via Reuters
March brought the strongest manufacturing growth in more than 37 years, and with it increasing indications about inflation pressures in the months ahead.
The Institute for Supply Manufacturing’s monthly survey registered a 64.7% reading, representing the level of companies reporting expansion against contraction. That translated to a 3.9 percentage point increase from February, and the highest level since December 1983.
Moreover, responses to various subcategories within the readings, as well as the written summations from survey participants, showed how tight conditions are in the sector.
“Widespread supply chain issues. Suppliers are struggling to manage demand and capacity in the face of chronic logistics and labor issues. No end in sight,” wrote a respondent in the machinery field.
“Business bottomed out in February; we are expecting steady improvement through the end of the year. Inflation and material availability, along with logistics, are major concerns,” said another executive in the furniture and related products industry.
Their comments reflect sub-components within the ISM survey.
While the prices paid component edged lower, it remained elevated at 85.6%. Backlogs registered 67.5%, while inventories tumbled further to just 29.9%, which the survey classifies as “too low.” Low levels of goods often translates into higher costs.
Survey respondents said “their companies and suppliers continue to struggle to meet increasing rates of demand due to coronavirus … impacts limiting availability of parts and materials,” ISM Chair Timothy Fiore said.
“Extended lead times, wide-scale shortages of critical basic materials, rising commodities prices and difficulties in transporting products are affecting all segments of the manufacturing economy,” he added.
Pressures may not be temporary
For many economists, the survey simply reinforced a message that other data points have shown lately, namely that inflationary pressures continue to build and perhaps not on simply a transitory basis as Federal Reserve officials have indicated.
The last time the ISM manufacturing reading was that high was just before a year when gross domestic product grew at a 7.2% pace and inflation was at 3.8%.
Supply chain issues, including but not limited to the bottleneck in the Suez Canal, along with trillions in cascading government stimulus and rising prices for real estate, food and gasoline all point to more inflation ahead.
“The bigger picture is that fiscal policy remains highly expansionary and is only one of several factors that point to a sustained rise in inflation,” Jonathan Peterson, an economist at Capital Economics, said in a note.
The Fed has been aggressive in its push for higher inflation, with officials…
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