Manufacturers expanding at fastest pace in three years…

Manufacturers expanding at fastest pace in three years…

Apr 25, 2018

“Manufacturers expanding at fastest pace in three years, flash PMI data show”

By Jeffry Bartash, MarketWatch

U.S. economy is speeding up again, but inflation is warming up too, IHS Markit finds

The numbers: American companies grew faster in April, especially manufacturers, in a reflection of a steadily expanding U.S. economy. But inflationary pressures increased as well.

The flash IHS Markit U.S. manufacturing PMI climbed to 56.5 this month from 55.5 and touched a three-and-a-half-year high. Readings over 50 indicate expansion.

A similar survey of service-oriented businesses that employ most Americans also rose. It edged up to 54.4 from 54. A flash reading is typically based on approximately 85%–90% of responses each month.

At the same time, the survey showed the cost of raw or partly finished materials increased at the fastest pace in almost five years. Firms said the recently announced White House tariffs on steel as well as a large basket of Chinese goods were partly to blame.

What happened: Businesses boosted production in April to match an increase in new orders.

Companies also acted more aggressively to secure materials from suppliers because they are taking longer to deliver them. That suggests companies are running into bottlenecks, a potential hurdle for the economy if the situation gets worse.

Tight supplies also mean higher prices — aka inflation.

Even with new orders increasing, companies eased back on hiring. They focused more on improving efficiency — no surprise given a growing shortage of skilled labor.

Big picture: The economy is ramping up for a strong spring, but shortages of skilled labor, rising inflation and the threat of widespread tariffs could put a cap on U.S. growth despite recent tax cuts and higher federal spending.

Higher inflation could also spur the Federal Reserve to raise interest rates more aggressively, another potential drag on faster U.S. growth.

What are they saying?: “After a relatively disappointing start to the year, the second quarter should prove a lot more encouraging,” said Chris Williamson, chief business economist at IHS Markit.

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