Manufacturing Surge Bolsters US Economic Recovery

March 25, 2021 James Heinsman Economic Barometer

The US economy thrived through the first two months of 2021, backed by strong growth in the manufacturing sector and aided by the prospect of President Biden’s proposed $1.9 trillion stimulus package.

According to the Bureau of Labor Statistics, unemployment fell in January to 6.3 percent, the lowest point since the corona pandemic began, while the Consumer Price Index rose 0.3 percent, with 1.9 percent overall inflation.

The robust economy has been led by a resurgent manufacturing sector. According to the Institute for Supply Management (ISM), the country’s Purchasing Manufacturers Index (PMI) hit 60.8 in February, the highest point in three years.

IHS Markit put the number at 58.6, a slight drop from January’s 59.2 mark, but together the first two months of the year have produced the strongest Markit index since 2010.

If there is a cloud on the horizon, it is a large backlog of orders, largely due to complications in the shipping and transportation industry fueled by coronavirus, coupled with a rise in input prices.

Taken together, the numbers suggest continued economic strength – if global supply lines can keep up with demand.

“The manufacturing economy continued its recovery in February,” Tim Fiore, chair of the ISM’s manufacturing business survey committee, told Yahoo!Finance.

“Issues with absenteeism, short-term shutdowns to sanitize facilities, and difficulties in hiring workers remain challenges and continue to cause strains that limit manufacturing-growth potential. Optimistic panel sentiment increased, with five positive comments for every cautious comment, compared to a 3-to-1 ratio in January,” Fiore said.

“A renewed surge in optimism suggests the recovery has much further to run,” added Chris Williamson, chief business economist at IHS Markit. “Business expectations about the year ahead jumped to a level only exceeded once over the past six years, buoyed by a cocktail of stimulus and post-COVID recovery hopes as life continues to return to normal amid vaccine roll outs.”

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