Is the US manufacturing rebound hitting a wall?
Probably not, but it’s certainly worth noting that durable goods orders dropped for the first time since the initial pandemic lockdowns.
Orders fell 1.1% last month, against expectations for a small gain.
Factories have been a bastion of stability over the course of the pandemic, an ironic twist for the world’s largest economy, which long ago transitioned to a model based primarily on a self-referential dynamic wherein low-paid services sector employees consume the same services whenever they get a day off from providing them.
Core capital goods orders dropped 0.8% in February, considerably worse than estimates.
Predictably, the poor showing was written off to bad weather and supply chain disruptions. It’s easy to lampoon those kinds of excuses, but usually, there’s a kernel of truth there. The weather was bad in parts of the country in February, after all. And everyone knows bottlenecks and other pandemic distortions are still playing havoc.
Meanwhile, the flash read on IHS Markit’s manufacturing PMI for the US in March was a slight miss. The 59 print compared to consensus of 59.5. The new orders gauge was the highest in almost seven years.
At 60, the services gauge was essentially in line with estimates, and the highest since July of 2014.
IHS Markit confirmed that supply chain problems are now constraining manufacturing. “Although capacity pressures stemming from extensive supply shortages constrained manufacturing output growth to the slowest for five months, goods producers reported the sharpest rise in new orders since June 2014,” the accompanying color said.
This is, of course, conducive to price pressures. “Unprecedented supply chain disruptions pushed price gauges higher once again,” IHS Markit went on to note. Input cost inflation was the fastest on record. Prices for raw materials, PPE and fuel prices “soared,” the report said.
Robust demand made it feasible to pass some of the costs on to clients. Selling price inflation rose at the briskest clip ever.
“Another impressive expansion of business activity in March ended the US economy’s strongest quarter since 2014,” Chris Williamson, Chief Business Economist at IHS Markit, remarked, adding that,
The vaccine roll-out, the reopening of the economy and an additional $1.9 trillion of stimulus all helped lift demand to an extent not seen for over six years, buoying growth of orders for both goods and services to multi-year highs. Producers were increasingly unable to keep pace with demand, however, due mainly to supply chain disruptions and delays. Higher prices have ensued, with rates of both input cost and selling price inflation running far above anything previously seen in the survey’s history.
Draw your own conclusions.