The U.S. economy is gaining momentum as manufacturing progresses; Deficiency is still a limitation according to Reuters

Author: Lucia Mutikani

WASHINGTON (Reuters) – US manufacturing activity rose in November due to strong demand for goods, keeping inflation high as factories continued to struggle with a shortage of pandemic-related raw materials.

Signals of a booming economy in the middle of the fourth quarter were highlighted by other data on Wednesday, showing that private employers have maintained a strong hiring pace over the past month. But there are fears that the Omicron variant of COVID-19 could hurt demand for services, as well as keeping the unemployed at home and stopping employment growth and the economy.

“Manufacturing should continue to contribute positively to GDP growth next year as companies renew their inventories and supply chain problems improve,” said Ryan Sweet, a senior economist at Moody’s (NYSE 🙂 Analytics in West Chester, Pennsylvania. one. “There are risks to the potential for companies to overbook orders and Omicron variants to increase price and supply chain problems.”

The Institute for Supply Management (ISM) said its national plant activity index rose to a reading of 61.1 from 60.8 last October.

A reading above 50 indicates the expansion of manufacturing, which accounts for 12% of the U.S. economy. Economists surveyed by Reuters predicted that the index would rise to 61.0.

“The U.S. manufacturing sector remains in a demand-driven environment and is constrained by supply chains, with some signs of improved labor and supplier delivery,” said Timothy Fiore, chair of the ISM Manufacturing Survey Committee.

The global economic downturn of the COVID-19 pandemic, fueled by $ 1 trillion in government aid, has tightened supply chains, leaving factories waiting longer to receive raw materials.

The Federal Reserve’s Beige Book on Wednesday described economic activity as growing at a “modest or moderate pace” in October and early November, but noted that “growth was limited by supply chain disruptions and labor shortages.”

The six largest manufacturing industries in the ISM survey, including computer and electronic products and transportation equipment, experienced moderate or strong growth.

Manufacturers of computer and electronic products said that “the shortage of international components continues to cause delays in completing customer orders.” Transportation equipment manufacturers experienced “significant volume drops” due to a shortage of chips. According to furniture manufacturers, “the business is strong but it is difficult to meet customer demand due to a shortage of raw materials and manpower.”

But there are some clear hopes. Prices for steel sheet and hot-rolled coil appear to be close to the plateau, according to manufacturers of manufactured metal products. It is improving the supply of plastic resins, accounts of electrical equipment, appliances and components, as well as manufacturers of plastics and rubber products.

The size of ISM survey shipments fell to 72.2 from 75.6 in October. Reading more than 50% indicates slower submissions.

Long delivery times kept inflation at the factory door. The size of the price survey paid by manufacturers fell to 82.4 in October from 85.7.

Factories are easily passed on to consumers by rising production costs and there is still no sign of resistance.

Fed Chairman Jerome Powell told lawmakers that the “risk of higher inflation” has increased, adding that the U.S. central bank should consider accelerating the pace of reducing its large-scale bond purchases at its next policy meeting in two weeks.

The Fed’s preferred inflation measures rose the most in nearly 31 years in October each year.

Shares of Wall Street rose after trading on Tuesday. The dollar was stable against a basket of currencies. Longer-term U.S. Treasury prices rose.

Chart: ISM PMI: https://graphics.reuters.com/USA-STOCKS/akvezozqbpr/ISM.png

STRONG DEMANDS

The ISM survey’s new forward-looking subscription rose to 61.5 from 59.8 last October. Customer inventories were down.

With strong demand, the factories hired more staff. A measure of manufacturing employment rose to a seven-month high.

Strengthening labor market conditions The ADP National employment report strengthened on Wednesday, with private payrolls rising by 534,000 in November after rising to 570,000 in October. That was generally in line with expectations.

Graphic: ADP: https://graphics.reuters.com/USA-STOCKS/byvrjqjlzve/adp.png

This, coupled with a strong consumer perception of the labor market over the past month, suggests that employment growth accelerated further in November. The first applications for unemployment benefits fell in mid-October and mid-November.

But the shortage of workers caused by the pandemic is hampering faster employment growth. By the end of September, 10.4 million jobs had been opened.

Workers have remained at home, even as companies have increased salaries, reopened the school for personal learning and ended up with generous federal-funded benefits.

“Overall, renewed health concerns continue to put workers at risk, especially those with care responsibilities, at risk of returning to work, preventing a return to pre-pandemic strength,” said Rubeela Farooqi, chief economist at U.S. High Frequency Economics in White. Plains, New York.

According to a survey of economists by Reuters, off-farm payrolls rose by probably 550,000 jobs in November. The economy created 531,000 jobs in October.

The Department of Labor will release a carefully reviewed employment report for November on Friday.