MACRO: US manufacturing activity gains further momentum in February

• US factory growth at 3-year high: ISM
• Prices paid component highest since July 2008

The ISM Manufacturing PMI rose to 60.8 in February from 58.7 last month, above analysts' estimates 58.8. Today's data pointed to the strongest expansion in factory activity since February of 2018. At the moment the US manufacturing sector is  outperforming its Chinese counterpart. New orders (64.8 vs 61.1), production (63.2 vs 60.7), employment (54.4 vs 52.6) and new export orders (57.2 vs 54.9) increased at a faster pace which underlines growing business optimism. 

However price pressures intensified (86 vs 82.1, the highest since July 2008) particularly due to higher prices of commodities and energy, which have been rising for several months now. Meanwhile supplier delivery times (72 vs 68.2) reached a level not seen since 1979. “A concern is that shortages of raw materials have become a growing problem, with record supply chain delays reported in February, contributing to the steepest rise in material costs seen over the past decade." "Prices charged for a wide variety of goods coming out of factories are consequently rising, which will likely feed through to higher consumer inflation.” said Chris Williamson, Chief Business Economist at IHS Markit

Prices paid component jumped to its highest since 2008. Source: Bloomberg via Zerohedge

This means that some serious supply chain problems will lead to even higher costs. If the demand remains at a high level, then the higher costs would be passed on to consumers. As a result, opinions appeared in the market, that inflation in the second quarter may rise even above 3.5%. The Fed's approach to this issue will be interesting. Until now the central bank reassures that it has no plans to raise interest rates before 2024. However, in view of the latest data, it seems that an interest rate hike may occur faster than originally assumed.