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Data released on Tuesday showed the ISM Manufacturing Index rose to 60.7 in December, considerably above market expectations, reflecting a positive momentum in the short-term. According to analysts at Wells Fargo, supply disruptions amid staffing issues, however, are constraining activity, while input prices are soaring.

Key Quotes: 

“Renewed restrictions and voluntary efforts to reduce interactions over the past month have not gotten in the way of the manufacturing sector’s recovery. The ISM manufacturing index jumped to 60.7 in December, just shy of its prior cycle peak reached in 2018. The leap follows the Markit index reaching a six-year high and is another indication that the manufacturing sector is benefiting from the pandemic-induced shift toward goods spending.”

“Despite the brisk pace registered in December, there are signs of bottlenecks restraining activity. Supplier delivery times lengthened more dramatically in December, with the index rising to 67.6—just shy of the level reached amid the spring’s wide-scale shutdowns.”

“Despite the latest round of “impact payments” going out and unemployed workers getting a $300 weekly top off on benefits, services activity is likely to remain subdued over the next couple months as record hospitalizations reinforce the need for social distancing and frees up cash for spending on goods. The ongoing need to rebuild inventories following supply chain disruptions and the stark rise in demand for goods should also keep manufacturing activity rising at a brisk pace through the early months of the year, even as GDP growth slows to a crawl in the first quarter.”