Factory activity nears 2½-year high; supply chains hit hard
Strength in manufacturing likely helped soften blow on economy in fourth quarter
U. S. factory activity accelerated to its highest level in nearly 2 1/2 years in December as the coronavirus pandemic continues to pull demand away from services toward goods, though spiraling new infections are causing bottlenecks in supply chains.
The strength in manufacturing reported by the Institute for Supply Management on Tuesday likely helped to soften the blow on the economy in the fourth quarter from the relentless spread of COVID-19 and government delays in approving another rescue package to help businesses and the unemployed.
The ISM said the virus was “limiting manufacturing growth potential” because of absenteeism and short-term shutdowns to sanitize facilities at factories and their suppliers.
“U. S. manufacturing should fare reasonably well this winter as businesses need to restock inventories and the shift in consumer spending away from services to goods helps manufacturers,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania.
The ISM’s index of national factory activity increased to a reading of 60.7 last month. That was the highest level since August 2018 and followed a reading of 57.5 in November. 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 would slip to 56.6 in December.
The ISM survey mirrored manufacturing gains in the euro zone and China.
Some of the surprise rebound in the ISM index, however, was due to an increase in the survey’s measure of supplier deliveries to a reading of 67.6 last month from 61.7 in November. A lengthening in suppliers’ delivery times is normally associated with a strong economy and increased customer demand, which would be a positive contribution.
But in this case slower supplier deliveries indicate supply shortages related to the pandemic.
Nevertheless, demand for manufactured goods has been strong as the resurgence in new COVID-19 cases has led to fresh business restrictions across the United States, largely impacting the vast services sector.
A large section of the population continues to work and take classes at home, fueling a scramble for electronics, home improvement products and other goods like exercise equipment.
Sixteen out of 18 manufacturing industries reported growth in Decem