Manufacturing Surveys Rebound In Feb As COVID Crackdowns Abate

US macro data has ‘outperformed’ admittedly dismal expectations in the last few weeks, as the politics science has lifted many COVID restrictions, and that is reflected in Markit’s US Manufacturing sector survey upticking from 12-month-lows at 55.5 in January to 57.3 in February (which admittedly is actually below the preliminary print of 57.5)

ISM’s Manufacturing survey also confirmed an uptick from Omicron’s dip, rising from 57.6 to 58.6

Source: Bloomberg

Under the hood, new orders surged (up to 61.7 vs 56,3 exp), while employment fell from 77.5 to 75.6, and prices were basically flat…

Source: Bloomberg

Chris Williamson, Chief Business Economist at IHS Markit said:

“The US manufacturing sector rebounded in February after the Omicron wave brought production close to a standstill in January. However, output remains heavily constrained both by ongoing raw material supply bottlenecks and labor shortages, albeit with some signs that the supply chain crisis has continued to ease. The decline in virus case numbers should also help alleviate labor shortages as we head into the spring.

“Demand is clearly continuing to run well ahead of supply, meaning it is a sellers’ market for a wide variety of goods. Although the survey’s price gauges covering companies’ costs and selling prices are off the peaks seen last year, they remain very high by historical standards and point to persistent elevated inflation in coming months. With rising oil prices adding further to soaring costs, and the Ukraine crisis likely to add to global supply disruptions, the inflation outlook is an increasing concern.

Most critically for all this sentiment data is the fact that with the survey data collected prior to the escalation of the conflict in Ukraine, the full impact of the situation is yet to appear in the data.

As Williamson notes, “supply chains are likely to be further disrupted, with existing shortages exacerbated by safety stock building, and prices will likely come under further upward pressure. Perhaps most important will be the effect on business optimism and whether the improvement in prospects seen in February will be reversed, which could lead to reduced spending and investment.”