U.S. manufacturing activity in April rose at the fastest pace since the same period in 2010, according to a report released this morning.
The IHS Markit U.S. Manufacturing PMI index was at 60.5 for April 2021, confirming a solid rebound of the U.S. manufacturing sector. It's the sharpest pace since April 2010, driven by unprecedented supplier delivery delays and raw material shortages.
Separately, the ISM Manufacturing index came at 60.7 in April of 2021, the 11th gain in a row, driven by new export orders. All six of the largest manufacturing industries expanded, led by fabricated metal products, chemical products and food, beverage and tobacco products.
Apparently, manufacturers are striving to catch up with the strong rebound in demand across the economy.
Last week, the U.S. government reported a 4.2% jump in March personal spending. It was the most significant increase in consumption since June 2020, as households received an additional round of direct economic impact payments from the government. Spending was solid on recreational items like games, toys and hobbies, motor vehicles and parts, food services and accommodations.
Then there was the Chicago PMI, a barometer of demand placed by purchasing managers, which increased 5.8 points to 72.1. It was the highest level since December 1983 and above market expectations of 65.3.
And the real gross domestic product, a measure of the nation's output, adjusted for inflation, which increased at an annual rate of 6.4% in the first quarter of 2021, following a 4.3% expansion in the previous three-month period. It a big turnaround from a year ago when the U.S. economy suffered a significant decline due to the Covid-19 pandemic.
A more robust economy is usually good news for equities, especially for the economically sensitive sectors. It leads to strong top and bottom lines, and eventually to higher prices.
But things don't always turn that way. A strong economy can fuel inflation, which drives interest rates higher, creating a headwind for equities.
Thus far, Wall Street seems to have subscribed to the first prospect, with shares of economically sensitive sectors rallying. Nonetheless, traders and investors have cast a wary eye on interest rates, with shares of these sectors selling off on days the 10-year Treasury bond yield, a barometer for long-term rates, heads north.
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