US factory activity gathers pace in May please

US factory activity gathered speed in early May amid strong domestic demand, but backlogs of uncompleted work are piling up as manufacturers struggle to find raw materials and labor, boosting costs for both businesses and consumers.

Though other data on Friday showed sales of previously owned homes dropping to a 10-month low in April as an acute shortage of houses drove prices to a record high, they remained well above their pre-pandemic level. The housing market and manufacturing have led the economy’s recovery from the COVID-19 recession, which started in February 2020.

“The economic recovery continues,” said Daniel Silver, an economist at JPMorgan in New York.

Data firm IHS Markit said its flash US manufacturing PMI increased to 61.5 in the first half of this month. That was the highest reading since October 2009, and followed a final reading of 60.5 in April. Economists polled by Reuters had forecast the index dipping to 60.2 in early May.

A reading above 50 indicates growth in manufacturing, which accounts for 11.9 percent of the US economy.

The Biden administration recently gave a bit of simple advice to businesses that are unable to find workers: Offer them more money.

This recommendation, included in a White House memo about the state of the economy, gets at a fundamental tension in an economy that is returning to full health after the coronavirus pandemic. Businesses are coping with spiking prices for goods such as steel, plywood, plastics and asphalt. Yet workers, after enduring a year of job losses, business closures and social distancing, are no longer interested in accepting low wages.

Administration officials say the White House is not trying to target a specific wage level for workers. But officials say higher wages are a goal of President Joe Biden and a byproduct of his $1.9 trillion relief package and at least $3.5 trillion in additional spending being proposed for infrastructure and education.

Republicans say that Biden’s policies have already let loose a torrent of inflation that will hurt the economy. The outcome of these competing forces could decide the trajectory of the US economy as well as the factors weighing on voters in next year’s elections.

More than a third of the population has been vaccinated, allowing the broader economy to reopen. According to IHS Markit “manufacturers highlighted that strain on capacity and raw material shortages are expected to last through 2021.”

It noted that the supply crunch was raising production costs for manufacturers, who “made efforts to pass higher cost burdens on to clients.”

According to IHS Markit, backlogs of work accumulated early this month at the fastest pace in 14 years. Its measure of new orders increased. Though factories tried to recruit more workers, the pace of hiring was the slowest in five months.

In a separate report, the National Association of Realtors said existing home sales dropped 2.7 percent to a seasonally adjusted annual rate of 5.85 million units last month, the lowest level since June. The third straight monthly decline in sales came as transactions fell in the Northeast, West and the densely populated South. Sales rose in the Midwest.