The growth of manufacturing in the U.S. accelerated further in February, a survey by the Institute for Supply Management showed Monday.
The ISM Manufacturing Report on Business PMI jumped at 60.8 in February, up from 58.7 in January. That’s the highest level since August 2018 and indicates a powerful expansion for the manufacturing sector.
The manufacturing sector figure suggests that the overall economy expanded for the ninth month in a row after the economy shrank in in March, April, and May of 2020.
The reading beats the forecast of 58.9 from economists polled by Econoday.
“Another month of strong production growth suggests that the US manufacturing sector is close to fully recovering the output lost to the pandemic last year, and a renewed surge in optimism suggests the recovery has much further to run,” said Chris Williamson, Chief Business Economist at IHS Markit said.
The IHS Markit index, which competes with the ISM index, dipped a bit in February but remains at a very strong level and indicates a marked upturn in the health of the sector. One notable difference is that the IHS index is more heavily skewed to smaller companies serving a domestic customer base while the ISM index is tilted toward bigger companies with global reach.
“Although the rate of overall growth eased, it was the second-fastest since April 2010 and was supported by sharp increases in output and new orders,” Williamson said.
The indexes are both produced from a survey of manufacturing supply executives. Scores above 50 indicate that the manufacturing economy is generally expanding, while below 50 indicates contraction.
There are some hints of overheating in the February numbers. The ISM prices index rose for the ninth consecutive month, up to 86. The institute said this indicates continued supplier pricing power and scarcity of supply chain goods. The bond market turned volatile last week over fears that another round of stimulus as large as the $1.9 trillion package proposed by the Biden administration.
“Prices charged for a wide variety of goods coming out of factories are consequently rising, which will likely feed through to higher consumer inflation,” Williamson said.
Demand for goods is up. The New Orders Index climbed to 64.8 from 61.1. That is “a strong level” of growth, according to Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee.
The production index rose to 63.2 compared with 60.7 in January
The employment index jumped to 54.4, up 1.8 points. But employers continue to complain about not being able to find enough workers despite high levels of unemployment.
“Issues with absenteeism, short-term shutdowns to sanitize facilities, and difficulties in hiring workers remain challenges and continue to cause strains that limit manufacturing-growth potential,” Fiore said.
Of the six biggest manufacturing industries, five — Chemical Products; Fabricated Metal Products; Transportation Equipment; Computer & Electronic Products; and Food, Beverage & Tobacco Products — registered strong growth in February. Petroleum & Coal Products—which suffered shutdowns during February’s cold snap—moderately contracted.