Increasing number of factories reporting faster expansion

Freshly released March data is showing increased activity among American manufacturing plants despite existing challenges.

As the first quarter draws to a close, factory purchasing managers say expansion in the sector is taking place even amid supply-chain woes and surging materials costs that are driving the inflation debate.

Their assessment is supported by recent data showing a rebound in manufacturing.

Among the data is the Federal Reserve Bank of Philadelphia’s index of general business activity, which soared to an almost five-decade high, while the IHS Markit’s data reflected the second-strongest figures dating back to 2007.

IHS Markit data is a preliminary gauge of US manufacturing.

The findings from both research highlight the fact that orders continue to grow as the economy gathers steam, while inventories of finished goods and stockpiles of materials remain lean.

Manufacturers facing struggles with shipping and port delays

Analysts say this combination should fuel even quicker production in the months ahead. However, manufacturers are struggling with shipping and port delays, as they battle over the limited number of available containers that have driven up costs.

This situation has been compounded by a ship stuck in the Suez Canal this week, which is causing delays in shipment with the fear that these delays will cause prices to go up even further. In addition, the steady demand and shortages of supplies needed to manufacture goods has sparked price pressures for inputs.

It has been observed that manufacturers are buying up everything from copper and aluminum to crude and iron ore. The latest Philadelphia, New York and Richmond Fed surveys point to the growing materials inflation that risks filtering through to higher prices of finished goods for households and businesses.

A March survey from the Kansas City Fed showed that nearly half of manufacturing firms were able to pass through a majority of materials price increases. Similar results were seen in IHS Markit’s data for both factories and services.

IHS Markit’s data gauge of input prices exceeded the prices charged measure by double digits for only the second time since 2009, suggesting pressure on margins is developing. 

The Richmond Fed’s latest manufacturing survey showed the region’s manufacturers aren’t expecting much more room to raise prices on their products.

Respondents say they expect prices received to rise an annualised 3.57 per cent six months from now in comparison to the 3.52 per cent increase they are currently receiving, which is the smallest difference in seven months.