WASHINGTON D.C.: U.S. factory activity surged in early April, though manufacturers struggled to source raw materials and other inputs, as a reopening economy leads to a boom in domestic demand, which could slow momentum in the months ahead.
More strong economic data late last week showed new home sales hitting an over 14-1/2-year high in March, contributing to a strong economy aided by the White House’s massive $1.9 trillion COVID-19 pandemic rescue package and increased vaccinations.
Retail sales hit a record high in March and hiring accelerated, bolstering expectations for robust growth in the first quarter and paving the way for what could be the economy’s best performance in nearly four decades.
“The U.S. economy is enjoying a strong start to the second quarter, firing on all cylinders as loosening virus restrictions, an impressive vaccine roll-out, a brighter outlook and stimulus measures all helped boost demand,” said Chris Williamson, chief business economist at IHS Markit.
The expansive vaccination drive among American adults, coupled with the fiscal stimulus, has allowed for broader economic re-engagement, but the strong demand is pushing against supply constraints.
The prices of materials and other inputs have seen a marked rise, driven by the pandemic-fueled disruption of labor at factories and their suppliers.
The IHS Markit survey’s measure of prices, paid by manufacturers, jumped to the highest level since July 2008, attributed to “severe supplier shortages and marked rises in transportation fees.”
The continued rise in input costs is one of many factors expected to drive inflation above the Federal Reserve’s 2 percent inflation target this year.
According to IHS Market, supply shortages were causing backlogs of uncompleted work “of a magnitude not surpassed for over seven years.”
Apart from the automobile industry, supply challenges have also spilled over to the housing market, threatening to worsen an already acute shortage of previously owned homes available for sale.
“Demand is causing new homes to be bought virtually as soon as they hit the market,” said Robert Frick, corporate economist at Navy Federal Credit Union in Vienna, Virginia.
The data helped lift stocks on Wall Street. The dollar fell against a basket of currencies and U.S. Treasury prices were lower.
Home sales soared 66.8 percent year-on-year in March, and were mainly concentrated in the South, Midwest and Northeast, but fell in the West. The sought-after segment of the market — sales below the $200,000 price bracket—accounted for only 3 percent of transactions last month, and those in the $200,000-$399,999 price range surged.
The National Association of Realtors reported on Thursday that with prices hitting an all-time high as supply remained near record lows, sales of previously owned homes declined for a second straight month in March.
“Inventories remain tight and while that should be a positive for home building activity, a lack of availability will likely remain a headwind for sales in the near term,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics in White Plains, New York.
About 74 percent of homes sold last month were either under construction or yet to be built.