- IHS Markit’s gauges of the US service and manufacturing sectors climbed to record highs in April.
- The indexes were boosted by the relaxing of restrictions and robust consumer demand.
- Still, supply-chain disruptions weighed on factories and lifted manufacturing costs.
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The US economy’s March rebound may have only been a warm-up.
Two popular gauges of business activity swung even higher in preliminary April readings, the analytics firm IHS Markit said on Friday. The services activity index leaped to 63.1 from 60.4, indicating the fastest level of expansion since data collection began in 2009. The firm’s manufacturing index rose to 60.6 from 59.1, also a record.
Markit’s composite index soared to an all-time high of 62.2 from 59.7. Readings above 50 indicate sector growth, while those below 50 signal contraction.
The broad improvements were largely driven by the loosening of economic restrictions and strong demand from consumers, Markit said in its report. Vaccinations also contributed to stronger activity at service businesses. Manufacturers were able to accelerate production despite supply-chain problems.
“The worsening supply situation is a concern for the outlook, especially in relation to prices,” Chris Williamson, the chief business economist at IHS Markit, said in a statement, adding that factories “appear to be struggling to boost operating capacity” amid a swelling backlog of orders.
The surge in activity and supply-chain pressures led input costs to climb at the fastest rate since 2008, according to Markit. Still, factories reported “markedly upbeat” expectations for the year ahead on hopes that an end to the pandemic and robust demand would drive further expansion, it said.
Services reported similarly optimistic outlooks, Markit said. Businesses described the easing of COVID-19 restrictions as critical to boosting confidence.
Markit’s report signaled that the strong momentum throughout March would continue through spring. Indicators tracking the labor market, consumer spending, and sentiment all shot higher last month as moves toward a full reopening revived economic activity. Federal Reserve Chair Jerome Powell repeatedly characterized the trends in March as marking an “inflection point” in the US recovery.
Still, supply strains hitting the manufacturing sector point to emerging risks. While the rate of private-sector inflation eased from March’s pace, it still registered the second-fastest climb on record. Markit said that many businesses it surveyed had passed on the costs to their clients and consumers.
The Fed has signaled that it will wait until inflation steadily trends above 2% before reining in its ultra-accommodative monetary policy. But with firms struggling to meet demand and supply-chain disruptions lingering, inflation could outpace the central bank’s outlook and place new pressure on the country just as it enters a new normal.