WASHINGTON (Reuters) – U.S. manufacturing activity picked up more than expected in February as COVID-19 infections subsided, though hiring at factories slowed, contributing to keeping supply chains snarled and prices for inputs high.
The Institute for Supply Management (ISM) said on Tuesday that its index of national factory activity increased to a reading of 58.6 last month from 57.6 in January, which was the lowest since November 2020.
A reading above 50 indicates expansion in manufacturing, which accounts for 11.9% of the U.S. economy. Economists polled by Reuters had forecast the index rising to 58.0.
Manufacturing is regaining momentum in line with the broader economy after hitting a speed bump as coronavirus infections, driven by the Omicron variant, surged across the country. The United States is reporting an average of 64,200 new COVID-19 infections a day, a fraction of the more than 700,000 in mid-January, according to a Reuters analysis of official data.
The ISM survey’s forward-looking new orders sub-index increased to 61.7 last month from 57.9 in January, which was the lowest reading since June 2020. Goods spending has surged as the pandemic curbed demand for services like travel. Even if spending reverts back to services as the health situation improves, economists expect demand for goods to remain strong.
Customer inventories have remained extremely lean for more than 60 months.
The survey’s measure of factory employment slipped to a reading of 52.9 last month from a 10-month high of 54.5. It had increased for five straight months.
A gauge of unfinished work at factories rose to 65.0 from a reading of 56.4 in January. The order backlog index dropped 6.4 points in January, the largest decrease since April 2020.
February’s reversal suggested that global supply chains remained stressed. That was also evident in the survey’s measure of supplier deliveries, which rose to 66.1 from 64.6 in January. A reading above 50% indicates slower deliveries to factories.
Inflation at the factory gate remained hot. The survey’s measure of prices paid by manufacturers dipped to a still-high reading of 75.6 from 76.1 January, pointing to sustained inflation pressures.
Inflation could accelerate in the months ahead following Russia’s invasion of Ukraine last week. Brent crude has surged to above $100 a barrel. Russia is facing severe disruption to its exports of all commodities from oil and metals to grains after western nations imposed stiff sanctions.
Inflation was already a problem before the invasion, with annual consumer prices posting their biggest increase in 40 years in January. The Federal Reserve is expected to raise interest rates this month. Economists are anticipating as many as seven rate hikes this year.
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama)
