US: Manufacturing vigorous, inflation emerging

5 min
Dan North
Dan North Senior Economist for North America

The manufacturing sector is displaying broad strength as manufacturing industrial production rose +0.5% m/m. Business and capex production led as machinery production rose +2.3% m/m, computer and electronic parts gained +1.2% m/m and electrical equipment rose +1.5% m/m. Similarly, regional Fed surveys were also robust. The Empire State survey, led by new orders, rebounded sharply in May from a drop over trade fears. A 45-year record in new orders drove the Philly Fed survey up from 23.2 to 34.4, while the prices paid component rose to a 37-year high. And new orders also boosted the Richmond survey up from -3 to +16. Housing starts and permits fell -3.7% m/m and -1.8% m/m, respectively, while single family completions fell -4.0% m/m, the second consecutive drop. More supply is needed to unclog a housing market which is being choked by a combination of rising interest rates and falling affordability; the median existing home price has risen +5.9% y/y, far outpacing wage gains of only +2.6%. In addition to pricing pressure in the Philly Fed survey and the housing market, gasoline prices are also rising, gaining +1.7% over the past week to +18% YTD.