The IHS Markit U.S. Manufacturing PMI indicator increased to 59.2 in January 2021 from 57.1 in December 2020, a strong beat to the FactSet consensus forecast of 56.8 and the highest reading ever recorded since collection began in May 2007. Output increased to 60.5 from 58.3, new orders rose to 59.5 from 56.5, employment rose to 54.8, while supplier delivery times were essentially flat after recently rising. PMI was impacted by a marked improvement in operating conditions, near-record supply chain disruptions pushing up input costs and prices charged rising at the steepest pace since July 2008.
Our view: A strong forward outlook for the U.S. manufacturing sector
The January Manufacturing PMI increase indicates a robust improvement in the health of the U.S. manufacturing industry and is consistent with a re-acceleration of activity after some weakness following rising COVID-19 cases and renewed economic restrictions in late 2020. The U.S. continues to show higher levels of expansion compared to other parts of the world, as other countries continue to battle ongoing COVID-19 restrictions.
After recently increasing, supplier delivery times were flat this month but remain very slow compared to pre-pandemic levels. Slower delivery times represent a combination of supply chain issues including raw material shortages, difficulties attracting and retaining a labor force, and rapidly returning demand, which could signal a strong forward outlook for the sector as these issues are addressed.
These same factors have impacted input and output pricing, reflecting some specific commodity shortages; however, companies have largely been able to pass on higher costs. We expect the upward pressure on prices supports upside risk to core inflation readings, not just in coming months but over the balance of 2021.
We are increasingly confident that a combination of a successful vaccine roll-out, stronger client demand, inventory restocking, reduced uncertainty surrounding the pandemic and presidential transition of power should bode well for the sector, especially with affirmed federal support from President Biden to focus on U.S. based manufacturing as we move forward.