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US manufacturers reported the biggest boom in at least 14 years
during April, but supply constraints at a time of surging demand
are causing prices to also rise at the steepest rate for over a
decade, notably for consumer goods.
The IHS Markit US Manufacturing Purchasing Managers' Index™
(PMI™) posted 60.5 in April, up from 59.1 in March. The reading was
the highest since data collection for the series began in May 2007
and indicating booming business conditions.
Demand surged according to the latest national survey of
purchasing managers, pushing new orders higher at a pace not seen
for 11 years amid growing recovery hopes and fresh stimulus
measures.
Production also grew strongly, but the rate of output growth
remained well below that recorded for new orders. In recent months,
the extent to which new orders growth has exceeded that of output
has been the greatest on record, indicating that production is
being constrained.
At the moment, sales are being met only by producers eating into
their warehouse stocks of finished goods, which fell sharply again
in April. The survey's elevated order-to-inventory ratio highlights
how producers will need to ramp up output to meet demand.
Over the past two months, demand has grown most strongly for
consumer goods, coinciding with the injection of fresh stimulus
from the government, notably in the form of cash payments to
households, which appears to have boosted spending.
Two other survey subindices provide a valuable insight into how
a lack of capacity is inhibiting production growth to an
unprecedented extent.
First, suppliers' delivery times are lengthening to a degree not
previously recorded by the survey. Manufacturers blame container
shortages, port congestion, and a simple imbalance of supply and
demand as having caused unprecedented supply delays.
Second, manufacturers' own backlogs of work rose at a record
rate in March, with a similar accumulation of these uncompleted
orders recorded in April.
With demand running ahead of supply, it's no surprise to see
prices increase. The April survey found producers' input costs
rising at the sharpest pace since July 2008. The rate of output
price inflation meanwhile hit the second-highest on record as firms
passed higher costs on to customers.
Worst affected have been consumer-facing firms, where a lack of
inputs has caused production to fall below order book growth to a
record extent over the past two months as household spending leapt
higher. It is also the consumer-goods producing sector which has
recorded by far the greatest shortfall of output relative to new
orders growth in recent months.
It is also consequently consumer goods producers that have
reported the steepest price rises over the past two months on
average, albeit with the rate of inflation easing in April from
March's record high.
Encouragingly, attempts to expand capacity via hiring extra
staff gained further momentum in April, though in some cases staff
shortages were an additional constraint on production.
However, with confidence in the outlook continuing to run at one
of the highest levels seen over the past seven years, buoyed by
vaccine rollouts and stimulus, further investment in production
capacity should be seen in coming months, helping alleviate some of
the price pressures.
Chris Williamson, Chief Business Economist, IHS
Markit
Purchasing Managers' Index™ (PMI™) data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
