Tag Archives: supply chains

DNI releases Annual Threat Assessment saying China will use Supply Chain as a Weapon

Global Supply Chains

Revelations 6:3-4 “when he opened the second seal, I heard the second living creature say, “Come!” 4 And out came another horse, bright red. Its rider was permitted to take peace from the earth, so that people should slay one another, and he was given a great sword.

Important Takeaways:

  • US Worries China Will Use Supply Chains As Weapon
  • The “Annual Threat Assessment” issued by the Director of National Intelligence said China is already using its supply chain dominance to force foreign companies and countries to transfer technologies and intellectual property to it.
  • China hit back against the assessment on Thursday, terming the report “slander” and saying it “confuses black with white.”
  • That could be a particular danger if China is able to take over Taiwan, another leading contributor to industrial and technology components, it said.
  • The “Annual Threat” report singled out China’s dominance in technology sectors including semiconductors, critical minerals, batteries, solar panels, and pharmaceuticals.
  • It pointed to an April 2020 speech by Chinese President Xi Jinping, who said China sought to increase control of key supply chains to be “able to use those supply chain dependencies to threaten and cut off foreign countries during a crisis.”
  • In space, by 2030 China will probably be “world-class” in all but a few specific technology areas.

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Railroad Strike would take huge toll on the Supply Chain

Revelations 18:23 ‘For the merchants were the great men of the earth; for by thy sorceries were all nations deceived.’

Important Takeaways:

  • Brace for Economic Shockwaves and Empty Shelves as Railroad Strike and New Energy Spike Could Hit Hard
  • More than 100,000 railroad workers are threatening to walk off their jobs this week over worker pay, health care, and other issues.
  • Unions are now negotiating with the nation’s biggest freight railroads, including Union Pacific, CSX, Norfolk Southern, BNSF, and Kansas City Southern, and have announced eight of the 13 tentative agreements needed to avert a strike.
  • The deals that have been announced so far have closely followed the Presidential Emergency Board’s recommendations that called for 24% raises over five years, $5,000 in bonuses and one additional paid leave day a year. But the two biggest unions representing conductors and engineers have been holding out because they want the railroads to go beyond those recommendations and address some of their concerns about strict attendance policies and working conditions.
  • If a deal is not made, then passenger service, supply chains, and jobs could be affected, costing the economy an estimated $2 billion per day.
  • Bloomberg explains the impact on the supply chain would be huge because trains transport 28% of all U.S. freight.

Read the original article by clicking here.

Canadian, U.S. truckers warn vaccine mandates will disrupt supply chains

By Steve Scherer and David Shepardson

OTTAWA/WASHINGTON (Reuters) – The main trucking lobbies in Canada and the United States are warning that vaccine and testing requirements for workers will further disrupt supply chains because there is already a dire shortage of drivers.

Canada will require vaccines for truck drivers starting in January, while the Biden administration has issued rules requiring truck drivers at companies with 100 or more employees to be vaccinated or submit to weekly testing.

More than two-thirds of goods traded between Canada and the United States travels on roads and highways. For most of the pandemic, truckers crossed the border regularly as they were considered essential workers to keep supply chains flowing.

“We know that there already is disruption in the supply chain; this is going to intensify it,” said Stephen Laskowski, president and chief executive of the Canadian Trucking Alliance (CTA), which represents some 4,500 carriers.

It estimates that 10-20%, or between 12,000-22,000 of Canadian truck drivers, and 40%, or some 16,000 of U.S. truck drivers traveling into Canada would be sidelined if the requirement begins.

“This is not a trucking issue. This is a Canada-U.S. economic issue,” Laskowski told Reuters, adding about 70% of that C$650 billion ($507 billion) U.S.-Canada trade moves by truck.

The American Trucking Associations (ATA), together with others, is seeking to block U.S. President Joe Biden’s vaccine mandate in court.

A U.S. appeals court issued a temporary stay last month blocking the requirements. The court found “all else equal, a 28 year-old trucker spending the bulk of his workday in the solitude of his cab is simply less vulnerable to COVID-19 than a 62-year-old prison janitor.”

The Justice Department has asked another court to throw out the temporary stay, and a decision could come as soon as mid-December.

Supply chain problems caused by the pandemic has contributed to inflation in both countries rising to decades high.

“Given the nature of our industry and makeup of our workforce, (it) could have devastating impacts on the supply chain and the economy,” ATA President and CEO Chris Spear said in a statement.

In written comments filed with the Labor Department, the ATA said the nation’s motor carriers could lose up to 37% of their drivers to “retirements, attrition to smaller carriers and/or conversion to independent contractor owner-operators.”

Motor carriers move 70% of all U.S. freight tonnage.

Laskowski said there are already 18,000 job vacancies for truck drivers in Canada and he is pushing to delay the Jan. 15 deadline to give companies more time to deal with the situation.

Canada’s Transport, Health and Trade ministries did not comment when asked whether truckers would be given more time.

A Transport Ministry spokesman said it encourages “all Canadian industries to develop COVID-19 vaccination requirements for their employees.”

Despite the potential disruptions, some 70% of Canadians support Prime Minister Justin Trudeau’s strict mandates, according to an EKOS Research poll.

“We’ll be seeing shortages of goods in stores” if the vaccine requirement deadline is not delayed, said Perrin Beatty, president of the Canadian Chamber of Commerce.

($1 = 1.2826 Canadian dollars)

(Reporting by Steve Scherer in Ottawa and David Shepardson in Washington; Editing by Marguerita Choy)

 

U.S. economy gaining steam as manufacturing forges ahead; shortages still a constraint

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. manufacturing activity picked up in November amid strong demand for goods, keeping inflation high as factories continued to struggle with pandemic-related shortages of raw materials.

Signs that the economy was gathering momentum halfway through the fourth quarter were underscored by other data on Wednesday showing private employers maintained a strong pace of hiring last month. But there are fears that the Omicron variant of COVID-19 could hurt demand for services as well as keep the unemployed at home, and hold back job growth and the economy.

“Manufacturing should continue to contribute positively to GDP growth over the next year as businesses replenish inventories and supply-chain issues improve,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania. “There are risks, including the potential for businesses overbooking orders now and the Omicron variant magnifying price and supply chain issues.”

The Institute for Supply Management (ISM) said its index of national factory activity increased to a reading of 61.1 last month from 60.8 in October.

A reading above 50 indicates expansion in manufacturing, which accounts for 12% of the U.S. economy. Economists polled by Reuters had forecast the index rising to 61.0.

“The U.S. manufacturing sector remains in a demand-driven, supply chain-constrained environment, with some indications of slight labor and supplier delivery improvement,” said Timothy Fiore, ISM chair of the manufacturing business survey committee.

Global economies’ simultaneous recovery from the COVID-19 pandemic, fueled by trillions of dollars in relief money from governments, has strained supply chains, leaving factories waiting longer to receive raw materials.

The Federal Reserve’s Beige Book on Wednesday described economic activity as growing at “a modest to moderate pace” during October and early November, but noted that “growth was constrained by supply chain disruptions and labor shortages.”

All of the six largest manufacturing industries in the ISM survey, including computer and electronic products as well as transportation equipment, reported moderate to strong growth.

Makers of computer and electronic products said “international component shortages continue to cause delays in completing customer orders.” Transport equipment manufacturers reported “large volume drops due to chip shortage.” Furniture producers said “business is strong but meeting customer demand is difficult due to a shortage of raw materials and labor.”

But there are some glimmers of hope. Prices for steel plate and hot-rolled coil appear to be nearing a plateau, according to manufacturers of fabricated metal products. Supply of plastic resins is improving, accounts from electrical equipment, appliances and components, as well as plastics and rubber products manufacturers suggested.

The ISM survey’s measure of supplier deliveries slipped to 72.2 from 75.6 in October. A reading above 50% indicates slower deliveries.

The long delivery times kept inflation at the factory gate bubbling. The survey’s measure of prices paid by manufacturers fell to a still-high 82.4 from 85.7 in October.

Factories are easily passing the increased production costs to consumers and there are no signs yet of resistance.

Fed Chair Jerome Powell told lawmakers on Tuesday that “the risk of higher inflation has increased,” adding that the U.S. central bank should consider accelerating the pace of winding down its large-scale bond purchases at its next policy meeting in two weeks.

The Fed’s preferred inflation measure surged by the most in nearly 31 years on an annual basis in October.

Stocks on Wall Street rebounded after Tuesday’s sell-off. The dollar was steady against a basket of currencies. Prices for longer-dated U.S. Treasury prices rose.

STRONG ORDERS

The ISM survey’s forward-looking new orders sub-index climbed to 61.5 last month from 59.8 in October. Customer inventories remained depressed.

With demand robust, factories hired more workers. A measure of manufacturing employment rose to a seven-month high.

Strengthening labor market conditions were reinforced by the ADP National employment report on Wednesday showing private payrolls increased by 534,000 jobs in November after rising 570,000 in October. That was broadly in line with expectations.

This, combined with consumers’ robust perceptions of the labor market last month suggest job growth accelerated further in November. First-time applications for unemployment benefits declined between mid-October and mid-November.

But a shortage of workers caused by the pandemic is hindering faster job growth. There were 10.4 million job openings at the end of September.

Workers have remained home even as companies have been boosting wages, school reopened for in-person learning and generous federal government-funded benefits ended.

“Overall, the risk remains that renewed health concerns will keep workers, especially those with caregiving responsibilities, from returning to the labor force, preventing a return to pre-pandemic strength,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics in White Plains, New York.

According to a Reuters survey of economists nonfarm payrolls probably increased by 550,000 jobs in November. The economy created 531,000 jobs in October.

The Labor Department is scheduled to publish its closely watched employment report for November on Friday.

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci)

Gasoline, auto retailing boost U.S. producer prices

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. producer prices increased solidly in October, driven by surging costs for gasoline and motor vehicle retailing, suggesting that high inflation could persist for a while amid tight global supply chains related to the pandemic.

The Federal Reserve last week restated its belief that current high inflation is “expected to be transitory.” A tightening labor market as millions remain at home is adding to price pressures, which together with shortages of goods sharply restrained economic growth in the third quarter.

The Fed this month started reducing the amount of money it is injecting into the economy through monthly bond purchases.

“The acceleration in inflation may not fade as quickly as previously thought, particularly for businesses because of the global supply-chain issues,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania. “Elevated inflation is turning up the heat on the Fed but they haven’t shown signs of buckling as they will stomach higher inflation to get the labor market back to full employment quickly.”

The producer price index for final demand rose 0.6% last month after climbing 0.5% in September, the Labor Department said on Tuesday. That reversed the slowing trend in the monthly PPI since spring. In the 12 months through October, the PPI increased 8.6% after a similar gain in September.

Economists polled by Reuters had forecast the PPI advancing 0.6% on a monthly basis and rising 8.7% year-on-year.

More than 60% of the increase in the PPI last month was due to a 1.2% rise in the prices of goods, which followed a 1.3% jump in September. A 6.7% surge in gasoline prices accounted for a third of the rise in goods prices. There were increases in the prices of diesel, gas and jet fuel as well as plastic resins.

Wholesale food prices dipped 0.1% as the cost of beef and veal tumbled 10.3%. Prices for light motor trucks fell as the government introduced new-model-year passenger cars and light motor trucks into the PPI.

Exorbitant motor vehicle prices have accounted for much of the surge in inflation as a global semiconductor shortage linked to the nearly two-year long COVID-19 pandemic has forced manufactures to cut production, leaving virtually no inventory.

Services gained 0.2% last month after a similar rise in September. An 8.9% jump in margins for automobiles and parts retailing accounted for more than 80% of the increase in services. The cost of transportation and warehousing services jumped 1.7%, also reflecting snarled supply chains.

Surveys from the Institute for Supply Management this month showed measures of prices paid by manufacturers and services industries accelerating in October. Manufacturers complained about “record-long raw materials lead times, continued shortages of critical materials, rising commodities prices and difficulties in transporting products.”

Data on Wednesday is expected to showed strong gains in consumer prices in October, according to a Reuters survey of economists. Stocks on Wall Street retreated from record highs. The dollar was steady against a basket of currencies. U.S. Treasury prices rose.

PORT CONGESTION

There is congestion at ports and widespread shortages of workers at docks and warehouses. There were 10.4 million job openings as of the end of August. The workforce is down 3 million from its pre-pandemic level.

Worker shortages were underscored by a report from the NFIB on Tuesday showing almost 50% of small businesses reported job openings they could not fill in October.

Also on Tuesday, Fed Chair Jerome Powell emphasized the U.S. central bank’s commitment to maximum employment, telling a virtual conference on diversity and inclusion in economics, finance and central banking that “an economy is healthier and stronger when as many people as possible are able to work.”

Wholesale prices of apparel, footwear and truck transportation of freight also rose last month as did the costs of food and alcohol retailing, hospital outpatient care as well as machinery, equipment parts and supplies.

Excluding the volatile food, energy and trade services components, producer prices shot up 0.4%. The so-called core PPI gained 0.1% in September. In the 12 months through October, the core PPI rose 6.2%. That followed a 5.9% advance in September.

Construction prices surged 6.6%, the largest gain since the series was incorporated into the PPI data in 2009.

“As companies feel the squeeze from higher energy and labor costs, as well as persistent logistics issues, producer price increases should be robust in the coming months,” said Will Compernolle, a senior economist at FHN Financial in New York.

Details of the PPI components, which feed into the personal consumption expenditures (PCE) price index, excluding the volatile food and energy component, were mixed. The core PCE price index is the Fed’s preferred measure for its flexible 2% target. Healthcare costs increased 0.4%. Airline tickets rebounded 0.3%, but portfolio management fees dropped 2.2%.

Though the October CPI data is still pending, economists believed that the core PCE price index moved higher last month after increasing 3.6% year-on-year in September.

“For now, we think the core PCE price index will be up 3.8% year-on-year in October,” said Daniel Silver, an economist at JPMorgan in New York.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)

More expensive food, rents boost U.S. inflation; further increases anticipated

By Lucia Mutikani

WASHINGTON (Reuters) -U.S. consumer prices increased solidly in September as Americans paid more for food, rent and a range of other goods, putting pressure on the Biden administration to urgently resolve strained supply chains, which are hampering economic growth.

With prices likely to rise further in the months ahead following a recent surge in the costs of energy products, the report from the Labor Department on Wednesday could test Federal Reserve Chair Jerome Powell’s repeated assertion that high inflation is transitory. Powell and the White House have blamed supply chain bottlenecks for the high inflation.

Supply chains have been gummed up by robust demand as economies emerge from the COVID-19 pandemic. The coronavirus has caused a global shortage of workers needed to produce raw materials and move goods from factories to consumers.

“Today’s number, with food price inflation and shelter inflation moving higher, suggests growing pressure on consumers,” said Seema Shah, chief strategist at Principal Global Investors. “Keep in mind too that the recent rise in oil prices hasn’t yet fed through to the numbers – that’s still to come, while the renewed rise in car prices is also likely to drive inflation numbers higher in the coming months.”

The consumer price index rose 0.4% last month after climbing 0.3% in August. Food prices jumped 0.9% after increasing 0.4% in the prior month. Owners’ equivalent rent of primary residence, which is what a homeowner would receive from renting a home, increased 0.4% after gaining 0.3% in August.

Food and rents accounted for more than half of the increase in the CPI in September. Economists polled by Reuters had forecast the overall CPI would rise 0.3%.

In the 12 months through September, the CPI increased 5.4% after advancing 5.3% on a year-on-year basis in August.

Excluding the volatile food and energy components, the CPI climbed 0.2% after edging up 0.1% in August, the smallest gain in six months. In addition to rents, the co-called core CPI was lifted by a 1.3% increase in the cost of new motor vehicles, which marked the fifth straight month of gains above 1%.

A global semiconductor shortage has forced auto manufacturers to cut production. There were also increases in the prices of household furnishings and operations last month. Consumers also paid more for motor vehicle insurance.

But prices for airline fares and apparel as well as used cars and trucks all fell. The so-called core CPI rose 4.0% on a year-on-year basis last month, matching the gain in August.

HIGH ENERGY PRICES

Oil prices jumped on Monday to the highest levels in years amid a rebound in global demand after the pandemic. Though Brent crude futures fell on Wednesday, prices remained above $80 a barrel. Natural gas prices have also surged.

Expensive energy products would add to accelerating wage growth in exerting upward pressure on inflation. The government reported last week that average hourly earnings increased by the most in seven months on a year-on-year basis in September because of worker shortages.

With the number of people voluntarily quitting their jobs hitting a record high in August and at least 10.4 million unfilled positions, wage inflation is set to rise further.

“The right place to look for inflation is not just in the so-called inflation data itself, but also in the tighter labor market and associated wage growth,” said Andrew Hollenhorst, chief U.S. economist at Citigroup in New York.

“Firms confident of passing on input costs may make higher energy prices a driver of broader inflation.”

September’s CPI report will have no impact on the Fed’s timeline to begin scaling back its massive monthly bond-buying program. The U.S. central bank signaled last month that it could start tapering its asset purchases as soon as November.

Economists expect that announcement will come at the Nov. 2-3 policy meeting.

“The central bank has already said that inflation has met the threshold for tapering, it’s the job market that hasn’t,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania. “The CPI could garner a reaction in the bond market as it could alter market expectations for the timing of the first rate hike by the Fed, which in our opinion, is still far off on the horizon.”

The Fed’s preferred inflation measure for its flexible 2% target, the core personal consumption expenditures price index, increased 3.6% in the 12 months through August, rising by the same margin for a third straight month. September’s data will be published later this month.

The Fed last month upgraded its core PCE inflation projection for this year to 3.7% from 3.0% in June.

Despite strong wage gains, high inflation is cutting into consumers’ purchasing power.

That, together with motor vehicle shortages, led economists to cut their gross domestic product estimates for the third quarter to as low as a 1.3% annualized rate from as high as a 7% pace. The International Monetary Fund on Tuesday slashed its 2021 U.S. growth forecast by a full percentage point, to 6.0% from 7.0% in July.

(Reporting by Lucia MutikaniEditing by Chizu Nomiyama)

As fuel pumps remain dry, UK’s Johnson says plans in place for supply chains

By Michael Holden, Kylie MacLellan and Costas Pitas

LONDON (Reuters) -British Prime Minister Boris Johnson sought on Wednesday to quell public fears as panic-buying left fuel pumps dry across major cities, saying the government was making preparations to ensure supply chains were ready for the run-up to Christmas.

Johnson said the situation at gas stations was improving, though in many regions, hundreds of forecourts remained closed and motorists spent hours hunting for fuel or sat snarled in queues waiting to fill their tanks.

“We now are starting to see the situation improve. We are hearing from industry that supplies are coming back onto the forecourt in the normal way and I would just really urge everybody to go about their business in the normal way,” Johnson said in televised remarks.

Johnson’s comments were his first since the fuel supply problems began at the end of last week when oil companies reported difficulty transporting petrol and diesel from refineries to filling stations.

Opposition Labor leader Keir Starmer accused him and the government of lurching from “crisis to crisis”.

There have been growing calls for doctors, nurses and other essential workers to be given priority in filling their cars to keep hospitals and social care services running, but Johnson said it would be better if “we stabilize it in the normal way”.

SUPPLY CHAINS

An air of chaos has gripped Britain, the world’s fifth-largest economy, in recent weeks as a shortage of truck drivers strained supply chains and a spike in European wholesale natural gas prices tipped energy companies into bankruptcy.

The post-Brexit dearth of truckers has been exacerbated by a halt to truck-driving-license testing during COVID lockdowns as well as people leaving the haulage industry.

It has sown chaos through supply chains and raised the specter of widespread shortages, price increases ahead of Christmas, and a prolonged rise in inflation.

“What we want to do is make sure that we have all the preparations necessary to get through until Christmas and beyond, not just in supplying the petrol stations but all parts of our supply chain,” Johnson said.

To tackle the shortage of drivers, the government has been forced to bring in measures it had previously ruled out, such as issuing temporary visas to 5,000 foreign drivers.

It has also put a limited number of military tanker drivers on standby to be deployed to deliver fuel if necessary.

Haulers, petrol stations and retailers say there are no quick fixes as the shortfall of truck drivers – estimated at about 100,000 – is so acute, and because transporting fuel demands additional training and licensing.

Ministers want businesses to pay more and offer truckers better conditions, rather than count on cheap foreign labor.

“What I don’t think people in this country want to do is fix all our problems with uncontrolled immigration again,” Johnson said. “We tried that for a long time… and in the end people could see it was leading to a low-wage, low-skill approach.”

‘CRAZY’

Industry groups said the worst of the fuel shortages seemed to be in London, the southeast and other English cities. Fights have broken out at some forecourts as drivers jostled for fuel and pictures on social media showed some people filling up old water bottles with fuel.

“I can’t believe it – it’s crazy,” said David Scade, a 33-year-old delivery driver who drove for hours searching for fuel in London. “They keep saying there is no shortage but I suppose everyone is panicking now.”

The Petrol Retailers Association (PRA), which represents independent fuel retailers who account for 65% of all the 8,380 UK forecourts, said there were signs the crisis was abating.

“We have conducted a survey of our members this morning and only 37% of forecourts have reported being out of fuel today,” said Gordon Balmer, executive director of the PRA, which had previously reported up to 90% of stations had problems.

“With regular restocks taking place, this percentage is likely to improve further over the next 24 hours.”

Retailers, truck drivers and logistics companies have warned that prices for everything from energy to Christmas gifts will have to rise because of the shortage of truck drivers.

The British Retail Consortium (BRC) urged the government to broaden the size and scope of its temporary visa scheme.

“It will take many months before there are enough new British drivers to cover the shortfall,” said Andrew Opie, director of food and sustainability at the BRC.

European drivers have also indicated they would not take up the visa offer, which only lasts until Dec. 24. Some Polish haulers said the offer was laughable and the German freight industry said drivers who left after Brexit would not go back.

(Additional reporting by Ben Makori, James Davey, and Joice Alves in London and Rene Wagner in Berlin; Writing by Michael Holden and Guy Faulconbridge; editing by Alistair Bell, Philippa Fletcher, Nick Macfie and Gareth Jones)

Canada’s Trudeau says scope for closer U.S.-Canada integration on EVs, critical mineral supply

By Steve Scherer

OTTAWA (Reuters) – Canada and the United States can collaborate more closely on manufacturing electric vehicles and on supplying critical minerals needed to make batteries for cars and other clean technologies, Prime Minister Justin Trudeau said on Thursday.

“The integration of our economies, of our supply chains … I think gives a real opportunity for us to really take some leaps forward,” Trudeau said in a telephone interview.

After noting that Canada has many of the rare earths minerals needed for car batteries and solar panels, Trudeau said it was important to have “a secure supply from a friend and an ally”.

China has been one of the main suppliers of critical minerals to the United States, and Biden is planning to mandate a review of critical U.S. supply chains with an eye to securing U.S. industrial supplies, Reuters reported earlier this week.

Canada’s mineral wealth “is part of why so many automakers are now looking at setting up their supply chains for zero emission vehicles in Canada,” Trudeau said.

General Motors Co, Ford Motor Co and Stellantis NV have all announced plans to manufacture electric vehicles in Canada in coming years.

“We’ve already seen something like $6 billion worth of investment by auto companies in Canada over the past couple of years into zero-emissions or low-emissions vehicles,” Trudeau said.

“There’s a lot of really great opportunities to be developing partnerships and production facilities not just for the North American market, but for the world,” he added.

(Reporting by Steve Scherer; Editing by Daniel Wallis)

U.S. factory activity near 2-1/2-year high; COVID-19 disrupting supply chains

By Lucia Mutikani

WASHINGTON (Reuters) -U.S. factory activity accelerated to its highest level in nearly 2-1/2 years in December as the coronavirus pandemic continues to pull demand away from services towards goods, though spiraling new infections are causing bottlenecks in supply chains.

The strength in manufacturing reported by the Institute for Supply Management (ISM) on Tuesday likely helped to soften the blow on the economy in the fourth quarter from the relentless spread of COVID-19 and government delays in approving another rescue package to help businesses and the unemployed.

The ISM said the virus was “limiting manufacturing growth potential” because of absenteeism and short-term shutdowns to sanitize facilities at factories and their suppliers.

“U.S. manufacturing should fare reasonably well this winter as businesses need to restock inventories and the shift in consumer spending away from services to goods helps manufacturers,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania.

The ISM’s index of national factory activity rebounded to a reading of 60.7 last month. That was the highest level since August 2018 and followed a reading of 57.5 in November. A reading above 50 indicates expansion in manufacturing, which accounts for 11.9% of the U.S. economy. Economists polled by Reuters had forecast the index would slip to 56.6 in December.

But some of the surprise rebound in the ISM index was due to an increase in the survey’s measure of supplier deliveries to a reading of 67.6 last month from 61.7 in November.

A lengthening in suppliers’ delivery times is normally associated with a strong economy and increased customer demand, which would be a positive contribution. But in this case slower supplier deliveries also indicate supply shortages related to the pandemic.

Nevertheless, demand for manufactured goods has been strong as the resurgence in new COVID-19 cases has led to fresh business restrictions across the United States, largely impacting the vast services sector.

A large section of the population continues to work and take classes at home, fueling a scramble for electronics, home improvement products and other goods like exercise equipment.

Computer and electronic products manufacturers said they continued to have “tailwinds from the COVID-19 pandemic research support for vaccines and treatments,” adding that “business picked up for us in the last month.”

Makers of miscellaneous products said “sales are now exceeding pre-COVID-19 levels.” Electrical equipment, appliances and components producers reported that business was stronger than expected, “with higher demand for many products.”

Despite strong demand, manufacturing output is still about 3.8% below its pre-pandemic level, according to the Federal Reserve. That could persist for a while as the new wave of infections causes disruptions to labor and the supply chain.

Food manufacturers complained the virus was “affecting us more strongly now than back in March.” Similar sentiments were echoed by transportation equipment makers who said the outbreaks were constraining suppliers. Plastics and rubber products also reported that their suppliers were having difficulty finding and retaining labor.

STRONG ORDERS GROWTH

The ISM report followed on the heels of data on Monday showing strong construction spending in November and October. Strength in the two sectors supports economists’ predictions that the economy grew at around a 5% annualized rate in the fourth quarter after a record 33.4% pace in the third quarter.

The manufacturing boost to gross domestic product would come through an accumulation of inventory by businesses.

The virus and depleted government pandemic money took a bite out of consumer spending in November. More than $3 trillion in government pandemic relief fueled growth in the July-September quarter after the economy contracted at a historic 31.4% rate in the second quarter. Nearly $900 billion in fiscal stimulus was approved in late December.

The ISM’s forward-looking new orders sub-index rose to a reading of 67.9 last month from 65.1 in November. Strong orders growth boosted manufacturing employment, which had contracted in November. The ISM’s manufacturing employment gauge rebounded to 51.5 from a reading of 48.4 in November.

But the supply chain gridlock is driving up costs for manufacturers. The survey’s prices paid index jumped to a reading of 77.6 last month, the highest since May 2018, from 65.4 in November. That raises the risk of higher inflation this year, though high unemployment could limit price pressures.

The labor market has lost steam in tandem with the economy since job growth peaked at a record 4.781 million in June.

According to an early Reuters survey of economists, nonfarm payrolls probably increased by 100,000 jobs last month after rising by 245,000 in November. That would mean the economy recouped about 12.5 million of the 22.2 million jobs lost in March and April. The government is scheduled to publish December’s employment report on Friday.

(Reporting by Lucia MutikaniEditing by Chizu Nomiyama and Paul Simao)