MACRO: US manufacturing PMI points to supply constraints

• US manufacturing and services activity rises at record pace
• Supply constraints worsening

Data firm IHS Markit said today its flash U.S. manufacturing PMI increased to 60.6 in the first half of April from 59.1 in March, well above analysts’ estimates of 60.5, preliminary estimates showed. Today's reading is the highest since the series started in May 2007 and pointed to a sharp rise in output but many firms stated that production capacity was hampered by an inability to source raw materials and inputs in a timely manner. Capacity issues at suppliers and ongoing port delays reportedly exacerbated supply chain disruptions. 

The improvement in manufacturing activity also affected the services sector, which has been severely impacted by the pandemic. The IHS Markit US Services PMI jumped to an all-time high of 63.1 in April, from 60.4 in March and beat market forecasts of 61.9. New business grew the most since data collection for the series began in October 2009, supported by a solid increase in new export orders. 

Both Manufacturing and Services PMIs are at record highs. Source: Bloomberg via ZeroHedge

However, the price front situation is less rosy. In the service sector, average cost burdens inflation remained high on higher fuel, wage, shipping and PPE costs, while the rate of charge inflation quickened. Meanwhile prices paid by manufacturers jumped to the highest level since July 2008. It attributed the higher input prices to “severe supplier shortages and marked rises in transportation fees.” These shortages increased prices of raw materials and other inputs.

The continued rise in input costs is one of many factors that could push inflation above the Federal Reserve’s 2% inflation target this year. This is of course in contradiction with the current rhetoric of Chair Powell. Therefore it will be interesting to see whether there will be any change in the Fed's stance during its next meeting on Wednesday.