US factory activity near 14-year high; home sales rise in December

WASHINGTON (Reuters) – U.S. manufacturing activity rose to its highest level in nearly 14 years in early January, but supply chain bottlenecks caused by the COVID-19 pandemic are driving prices up and signaling a rise. of inflation in the coming months.

Other data from Friday showed an unexpected increase in sales of previously owned homes in December. Manufacturing and the housing market are helping to anchor the economy, which has been hit by a wave of coronavirus infections. But the pandemic is causing labor shortages in construction sites and factories, which could erode some of the strength in the manufacturing and housing sectors.

Data firm IHS Markit said its US manufacturing PMI accelerated to a reading of 59.1 in the first half of this month, the highest since May 2007. from 57.1 in December.

Economists had predicted that the index would slide to 56.5 in early January. A reading above 50 indicates growth in the manufacturing sector, which accounts for 11.9% of the US economy. Production is supported by firms rebuilding stocks and a shift in demand towards goods from services due to the pandemic.

The measurement of new orders received by factories according to the IHS Markit survey reached its highest level since September 2014. The increase in demand reflected both existing and new customers, “with some customers reportedly having committed to previously suspended orders “. This led to manufacturers hiring more workers earlier this month. The survey’s factory employment index increased to 54.8 from 52.2 in December.

But the pandemic is expanding the supply chain, with the result that manufacturers are paying more for materials and are passing the higher production costs on to consumers. The survey on prices received by factories reached its highest level since July 2008.

This mirrored other manufacturing surveys, suggesting that inflation may rise and remain high beyond the expected push from the decline in weak readings in March and April from the calculation.

Strength in manufacturing helped lift commercial activity. Earlier this month, the survey’s flash composite PMI output index, which tracks the manufacturing and services sectors, rose to 58.0 from 55.3 in December. While its flash service sector PMI rose to 57.5 from 54.8 in December, the pace of growth of new businesses slowed down in early 2021.

The service sector, which accounts for more than two-thirds of US economic activity, has suffered the brunt of the pandemic, with major disruptions to restaurants, bars and other businesses attracting crowds. COVID-19 has infected more than 24 million people in the United States, with a death toll exceeding 400,000.

The survey’s service sector employment measure fell to six-month lows in early January.

US equities traded lower as the dollar remained stable against a basket of currencies. US Treasury prices have risen.

REGISTER LOW INVENTORY

In a separate report on Friday, the National Association of Realtors said existing home sales rose 0.7% to a seasonally adjusted annual rate of 6.76 million units last month. Economists had predicted that sales would drop 2.0% at a rate of 6.55 million units in December.

Home resales, which account for the majority of home sales in the United States, rose 22.2% year-on-year. They totaled 5.64 million in 2020, the highest since 2006. Sales in December increased in the Northeast and South. They remained unchanged in the Midwest and declined in the West.

Cheaper mortgages and an exodus from from urban centers to suburbs and other low-density areas as companies allow employees to work from homes and schools switch to online classes due to COVID-19 supporting housing demand. About 23.7% of the workforce works from home. The pandemic has had a disproportionate impact on low-income workers.

But housing supply remains a challenge. While the government reported Thursday that home construction and building permits rose in December to levels last seen in 2006, builders complain of rising timber prices and persistent shortages of labor and land, and they said that “delayed delivery times have put upward pressure on house prices.”

As of December, there was a record low of 1.07 million home ownership on the market, down 16.4% from November and 23% from a year ago, leading to an acceleration of house price inflation. The average price of existing homes increased by 12.9% from a year ago at $ 309,800 in December. House prices rose 9% in 2020.

At the pace of December sales, it would take a record low of 1.9 months to run out of current, declining stocks from 2.3 months in November and 3.0 months a year ago. A six to seven month supply is seen as a healthy balance between supply and demand.

Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Paul Simao