US manufacturing facility exercise close to 14-year excessive; House gross sales rise in December

By Lucia Mutikani

WASHINGTON (Reuters) – Manufacturing activity in the US peaked in nearly 14 years in early January. Bottlenecks in the supply chain caused by the COVID-19 pandemic are driving prices up and signaling an increase in inflation in the coming months.

Other Friday data showed an unexpected surge in home sales in December. The manufacturing and housing markets are helping to anchor the economy, which is being ravaged by a wave of coronavirus infections. However, the pandemic is creating labor shortages on construction sites and in factories, which could detract from some of the strength in manufacturing and housing.

Data firm IHS Markit announced that its flash PMI for US manufacturing rose to 59.1 in the first half of this month, the highest since May 2007, from 57.1 in December.

Economists had forecast that the index would fall to 56.5 in early January. A value above 50 indicates growth in manufacturing, which accounts for 11.9% of the US economy. Manufacturing is being supported by companies rebuilding their inventories and shifting demand for goods from services due to the pandemic.

The IHS Markit survey's measure of factory orders reached its highest level since September 2014. The increase in demand reflected both existing and new customers. "Some customers have reportedly committed to orders that were previously on hold." This resulted in manufacturers hiring more workers earlier this month. The survey's factory employment index rose to 54.8 from 52.2 in December.

But the pandemic is engulfing the supply chain, causing manufacturers to pay more for materials and passing the higher production costs on to consumers. The price of the survey for factories reached its highest level since July 2008.

This echoed other manufacturing surveys, which suggested inflation may rise and rise above the expected rise due to the decline in weak readings in March and April from the calculation.

The strength in manufacturing helped boost business activity. The survey's Flash Composite PMI Output Index, which tracks the manufacturing and service sectors, rose from 55.3 in December to 58.0 at the beginning of the month. While the flash services sector PMI rose to 57.5 from 54.8 in December, new business growth slowed at the beginning of 2021.

The service sector, which accounts for more than two-thirds of US economic activity, has borne the brunt of the pandemic, with severe disruptions in restaurants, bars, and other businesses drawing crowds. COVID-19 has infected more than 24 million people in the U.S., with the death toll exceeding 400,000.

The employment rate in the service industry fell to a six-month low in early January.

US equities were lower while the dollar was stable against a basket of currencies. US Treasury bond prices rose.

RECORD LOW BEARING

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

Home resales, which make up the bulk of US home sales, increased 22.2% year over year. They amounted to 5.64 million in 2020, the highest value since 2006. Sales in December rose in the northeast and south. They were unchanged in the Midwest and declined in the West.

Cheaper mortgages and an exodus from city centers to suburbs and other sparse areas as businesses allow employees to work from home and schools switch to online classes due to COVID-19 are fueling demand for housing. Around 23.7% of the labor force work from home. The pandemic hit low-wage workers disproportionately.

However, the housing supply remains a challenge. While the government reported Thursday that home building and building permits rose to levels last seen in 2006 in December, home builders complain of higher lumber prices and persistent labor and land shortages, saying "Delayed delivery times has brought home prices." put under pressure . "

December saw a record low of 1.07 million homes in the market, a 16.4% decline from November and 23% year-over-year, accelerating house price inflation. The median price for existing homes rose 12.9% year over year to $ 309,800 in December. House prices rose 9% in 2020.

At the sales pace in December, it would take a record low of 1.9 months to deplete current inventory, up from 2.3 months in November and 3.0 months a year ago. A supply of six to seven months is considered a healthy balance between supply and demand.

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