Mar 2, 2021 - Economy & Business

U.S. manufacturers are hopeful for recovery, but worried about rising prices

Data: Caixin, IHS Markit; Chart: Axios Visuals
Data: Caixin, IHS Markit; Chart: Axios Visuals

Purchasing managers' indexes for the manufacturing sector are moving in opposite directions in the U.S. and China.

Why it matters: China's economy was the first in the world to bounce back from the coronavirus pandemic and its manufacturing sector surged.

  • However, since November, manufacturing has tapered off as demand from Europe and North America slowed, showing the fragility of the economic recovery even as COVID-19 cases remain low.

Details: China's Caixin/Markit manufacturing PMI fell to 50.9 last month, the lowest level since last May.

  • An official government survey on Monday showed China’s economic recovery continued in February, but at a slower-than-expected pace, with all major sectors showing their lowest growth rates since last spring.

Conversely, manufacturing PMI, which tracks sentiment among major companies within the sector, rose again in the U.S. for the eighth consecutive month with rates of expansion in output and new orders up notably in February.

  • A separate survey from the Institute for Supply Management showed the highest reading since February 2018, following the passage of the Tax Cut and Jobs Act.

Between the lines: Demand is booming, U.S. businesses say, but they also noted a significant increase in prices.

  • ISM's prices paid index recorded an 86 last month, the highest reading since 2008.
  • According to Bespoke Research Group, the consumer price index reading when this figure is above 85 has been at an average of 3.2% since 1990.

The last word: “Prices are going up, and lead times are growing longer by the day. While business and backlog remain strong, the supply chain is going to be stretched very [thin] to keep up,” a U.S.-based respondent to ISM's survey said.

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