U.S. manufacturing expands in Feb.

It increases at fastest pace in 3 years as producers see prices climb.

U.S. manufacturing expanded in February at the fastest pace in three years and a gauge of materials costs accelerated the most since 2008 as supply shortages challenge the industry.

A gauge of factory activity increased to 60.8 from 58.7 a month earlier, according to Institute for Supply Management data released Monday. Readings above 50 indicate expansion and the figure exceeded the 58.9 median estimate in a Bloomberg survey of economists.

At a time when household and business demand is off to a solid start to the year amid lean inventories, producers are struggling with rising costs for raw materials, labor force disruptions and higher shipping rates. The ISM’s measure of prices paid for inputs climbed nearly 4 points in February to 86, the highest since July 2008.

Orders, production and factory employment measures all expanded at faster paces last month, highlighting robust and resilience in manufacturing that’s helping power the economy. At the same time, a measure of unfilled orders surged to the highest level in nearly 17 years while another gauge showed delivery times were the second-longest since 1979.

“Labor-market difficulties at panelists’ companies and their suppliers continued to restrict manufacturing-economy expansion and will remain the primary headwind to production growth until employment levels and factory operations can return to normal across the entire supply chain,” Timothy Fiore, chair of ISM’s Manufacturing Business Survey Committee, said in a statement.

Shortages of semiconductors have idled production at some auto plants.

Sixteen of 18 manufacturing industries reported growth in February, led by textiles, electrical equipment and appliances, and primary metals.

Production, orders

The ISM index of production rose 2.5 points in February to 63.2, while the new orders’ gauge climbed 3.7 points to 64.8.

To help meet demand, factories are adding to headcounts, the report showed. An index of manufacturing employment increased to the highest level in almost two years.

A survey of economists by the National Association for Business Economics showed increased optimism about the economy’s prospects this year. Respondents boosted their growth estimates for each quarter this year, according to the NABE report issued Monday.