US manufacturing activity picks up in February, supplies remain under pressure

Lucia Mutikani. By

WASHINGTON (Reuters) – US manufacturing activity lifted higher than expected in February as Covid-19 infections eased even as factory work slowed, helped by entanglement of supply chains and higher input prices.

The Institute for Supply Management (ISM) on Tuesday said the outlook for manufacturing in the next two months is favorable, noting that the backlog last month grew the most in 11 years. Factories also posted strong order growth.

“This report points to strong business conditions for manufacturing in a highly supply-constrained environment, with continued strong growth in input costs,” said Conrad Dequadros, senior economic advisor at Breen Capital in New York.

The ISM’s National Manufacturing Activity Index rose to 58.6 last month from 57.6 in January, the lowest since November 2020.

A reading above 50 indicates expansion in manufacturing, which accounts for 11.9% of the US economy. Economists polled by Reuters had predicted the index to rise to 58.0.

The survey came ahead of Russia’s invasion of Ukraine last Thursday, which some economists say could further strain supply chains. The conflict led to a rise in the prices of oil and wheat, among other commodities.

“The US has limited direct trade ties with Russia, but the conflict will push up global prices for energy and other commodities,” said Will Kompernoll, senior economist at FHN Financial in New York.

All six major manufacturing industries – transportation equipment, machinery, computers and electronics, food, chemicals, as well as petroleum and coal products – posted moderate to strong growth.

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Manufacturing is gaining momentum in line with the broader economy after hitting pace in the form of coronavirus infections driven by the Omron variant across the country. The United States is reporting an average of 69,704 new Covid-19 infections a day, a fraction of the more than 700,000 in mid-January, according to a Reuters analysis of official figures.

The ISM survey’s potential new orders sub-index rose to 61.7 from 57.9 in January last month, the lowest reading since June 2020. services such as travel. Even if spending on services comes back as health conditions improve, economists expect demand for goods to remain strong.

Customer list remained extremely low for over 60 months.

The Backlog Index dropped 6.4 points in January, the biggest drop since April 2020. February’s reversal suggested that global supply chains remain tense.

This was also evident in the survey’s supplier delivery measure, which rose to 66.1 from 64.6 in January. Readings above 50% indicate slow delivery in factories.

The measure of the Factory Job Survey dropped to 52.9 from 54.5 the previous month. This was extended for five consecutive months.

(by Lucia Mutikani)