On February 1, 2021, a worker welded a structural steel beam during production at the SME steel contractor plant in West Jordan, Utah.
George Frey | Bloomberg | Getty Images
Driven by the strong growth in new orders, the US manufacturing activity indicator surged to its highest level in 37 years in March, which is the most obvious sign of the most anticipated economic boom so far.
The Institute for Supply Management (ISM) said on Thursday that its national factory activity index jumped from 60.8 in February to 64.7 last month. This is the highest level since December 1
A reading above 50 indicates that the manufacturing sector is expanding, accounting for 11.9% of the US economy. Economists surveyed by Reuters had predicted that the index would rise to 61.3 in March. The year-long Covid-19 pandemic has stimulated demand for commodities.
The White House’s huge $1.9 trillion pandemic relief plan and the reopening of non-essential businesses as more and more Americans are vaccinated against the coronavirus, economic growth is expected to take off this year.
The rescue plan passed last month sent an additional $1,400 check to eligible families and extended the government safety net for the unemployed until September 6. Families have also accumulated approximately $19 trillion in excess savings, which is expected to stimulate pent-up demand.
President Joe Biden announced a plan on Wednesday to spend about $2 trillion on infrastructure such as roads and bridges over 10 years.
The estimated annual growth rate of GDP in the first quarter is as high as 10.0%. The economy grew by 4.3% in the fourth quarter. This year’s growth may exceed 7%, which will be the fastest since 1984. The economy contracted 3.5% in 2020, the worst performance in 74 years.
However, large-scale fiscal stimulus measures may cause the economy to resist domestic production capacity restrictions and increase inflation. Suppliers are already working hard to deliver materials to manufacturers, driving up production costs. This is most obvious in the automotive industry, because the global shortage of semiconductor chips has forced a reduction in car production.
The ISM survey shows that the price paid by manufacturers last month hovered around the highest level since July 2008.
Its forward-looking new orders sub-index jumped to 68.0 in March. This is the highest reading since January 2004, higher than February’s 64.8. The factory has also received more export orders, while the backlog of orders is increasing.
There is room for further expansion, and the inventories of manufacturers and their customers are still small. Due to strong demand, the factory hired more workers in March. The survey’s manufacturing employment indicator rose to 59.6 from 54.4 in February, the highest level since February 2018.
This supports expectations of a sharp acceleration in employment growth in March. According to a Reuters survey of economists, non-agricultural employment may have increased by 647,000 last month after an increase of 379,000 in February. The government is scheduled to release the March employment report on Friday.