In the U.S., factory production and product sales soared in March, according to the Institute for Supply Management, an industry trade group. Its index of factory activity—a measure that takes into account new orders for goods, production, inventory levels and commodity prices—rose to 64.7 last month from 60.8 in February. Any figure above 50 suggests industry expansion.
The expansion—driven largely by American consumers venturing out in public again armed with government stimulus money—was broad based, with demand rising from every major industry, from restaurants to chemical companies.
The resurgent global economy, led by the U.S., will likely drive world trade higher this year, despite a series of acute disruptions to already strained supply chains, including last week’s blockage of the Suez Canal.
In the eurozone, factory activity grew at the fastest pace in at least two decades, according to the forecasting firm IHS Markit. Its purchasing managers index for the area rose to 62 in March from 57 a month earlier.
China, the world’s No. 2 economy and a major global exporter, had trouble keeping up with the rise in demand last month, as supply-chain disruptions impeded the flow of goods. The country’s factory-sector growth eased slightly last month, according to IHS Markit.
“It’s started to really transition to an extremely strong, demand-driven economy,” said Timothy Fiore, head of the panel that oversees the ISM factory survey. He said the industry is in a V-shaped recovery. “Companies and their suppliers have not been able to react quick enough to staff up.”
Factory inventory levels in the U.S. are at all-time lows, and companies are struggling to replenish them, for two main reasons: a shortage of workers and supply-chain disruptions. Factories can’t get supplies fast enough.
Pent-up demand has been so high that shippers are running low on containers in which to ship goods by sea. Despite those shortages, the World Trade Organization expects flows of goods across borders to increase by 8% this year, more than reversing the 5.3% drop seen in 2020 as the pandemic hit factory output and shipping.
The recent blockage of the Suez Canal by the Ever Given, a giant cargo ship, has delayed scores of ships that rely on the canal to ferry goods from Asia to Europe and the U.S. Delays to supplies are likely to be felt by retailers and manufacturers over coming weeks.
“The fact that the Ever Given was able to cause so much disruption is a sign that global merchandise trade is relatively robust, and that global supply chains have held up through the pandemic,” said Ngozi Okonjo-Iweala, the WTO’s director general, at a news conference unveiling its new forecasts.
The Geneva-based trade regulator estimates that just 0.38% of annual global trade flows were delayed by the Ever Given, which was freed Monday after the six days it spent jammed between the two banks of the Suez Canal.
“Every day there are domestic and international supply chain shocks of varying degree, from winter storms in Texas, to hurricanes and plant fires,” said Robert Koopman, the WTO’s chief economist. “This one was visible and had clear knock-on effects, but frankly it’s likely to be absorbed in the normal noise in the data.”
While goods are likely to reach their final destinations with some delay, as long as they continue to get there global economic output is likely to be little affected. However, the Suez blockage will add to the rising costs faced by manufacturers world-wide.
Purchasing managers responding to IHS Markit’s monthly questioning reported strong rises in the prices they have had to pay for their supplies, even where output is relatively subdued. Taiwan, South Korea and Vietnam have been big beneficiaries of the surge in U.S. demand for consumer goods, and factories there are reporting lengthening waits for the supplies they need as well as rising prices. So too are factories in Thailand and Malaysia, which are still struggling to recover from the pandemic.
Before the Suez Canal accident, Europe’s factories were booming, according to the IHS Markit surveys, with Germany’s manufacturers during March reporting the fastest increase in activity in the 25-year history of the monthly poll. That was partly driven by export orders, which reached what IHS Markit said were unprecedented levels.
The survey found that 76% of manufacturers had seen average supplier delivery times lengthen in March, surpassing the previous record high, which was the 64% recorded in February. They also reported the second-fastest monthly rise in input prices.
“The Suez Canal blockage could not have come at a worse time,” said Phil Smith, an economist at IHS Markit.
But while that obstacle to the speedy movement of goods has been removed, other problems remain. Container ships arriving at Southern Californian ports have to wait for as long as 12 days to unload their cargoes of washing machines, medical equipment, consumer electronics and other goods.
Those delays are unlikely to ease quickly, with U.S. demand set to receive a further boost from the Biden administration’s $1.9 trillion support package.
According to the WTO, that will ensure that North American demand for imports—most of which comes from the U.S.—will rise by 11.4% this year, a much faster increase than the 8% expected for Europe. And it expects Asia to meet much of that increased demand, with its exports set to rise by 8.4%, although Europe’s overseas sales will almost keep up with a rise of 8.3%.