U.S. factory activity cools; cost pressures mounting

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. factory activity slowed in early February likely as a global semiconductor chip shortage hurt production at automobile plants, while prices of inputs and manufactured goods soared, which could heighten fears of strong inflation growth this year.

The report from data firm IHS Markit on Friday also showed businesses in the services industry were experiencing higher costs related to the procurement of personal protective equipment, a greater proportion of which they were passing on to clients “through a marked rise in selling prices.”

Inflation is being closely watched amid concerns from some quarters that President Joe Biden’s proposed $1.9 trillion COVID-19 rescue package could cause the economy to overheat. The package would be on top of nearly $900 billion in additional fiscal stimulus provided at the end of December.

“A concern is that firms’ costs have surged higher, driving selling prices for goods and services up at a survey record pace and hinting at a further increase in inflation,” said Chris Williamson, chief business economist at IHS Markit.

IHS Markit’s flash U.S. manufacturing PMI dropped to 58.5 in the first half of this month from a final reading of 59.2 in January. Extreme weather in large parts of the United States was also blamed. The data was in line with economists’ forecasts.

A reading above 50 indicates growth in manufacturing, which accounts for 11.9% of the U.S. economy. Manufacturing has powered ahead as the pandemic left Americans grounded at home, shifting demand to household goods from services like airline travel and hotel accommodation.

But the coronavirus has disrupted labor at both suppliers and manufacturers, leading to shortages of goods critical to the production processes. Motor vehicle manufacturers have been hit by a semiconductor chip shortage, leading some to temporarily close assembly plants this month.

General Motors announced it would take down production entirely at its Fairfax plant in Kansas City during the week of Feb. 8. Ford Motor has reduced shifts at its Dearborn truck plant and Kansas City assembly plant.

The supply chain bottlenecks, which are widespread across the manufacturing sector as well as the services industry, have led to higher prices for inputs, including raw materials. The survey’s measure of prices paid by manufacturers shot up to its highest level since April 2011. A gauge of prices received by factories surged to its highest level since July 2008.

Though price pressures are expected to rise as last year’s low readings drop out of the calculation, there is no consensus among economists whether higher inflation would stick beyond the so-called base effects.

Federal Reserve Chair Jerome Powell said last week while he expected inflation to be boosted by base effects and pent-up demand when the economy fully reopens, that would be transitory, citing three decades of lower and stable prices.

The inflation outlook will likely hinge on the labor market, which is currently experiencing considerable slack, with at least 18.3 million Americans on unemployment benefits.

While the manufacturing expansion cooled, activity in the services industry gained traction this month.

The IHS Markit’s flash services sector PMI edged up to 58.9 from a final reading of 58.3 in January. The highest reading since March 2015 came as new COVID-19 infections and hospitalization rates dropped, allowing authorities to roll back some restrictions on consumer-facing businesses.

The services sector, which accounts for more than two-thirds of U.S. economic activity, has borne the brunt of the pandemic.

Cost burdens for services businesses increased at their steepest pace since October 2009, leading to firms boosting their selling prices at the sharpest rate on record.

Stocks on Wall Street were trading higher. The dollar fell against a basket of currencies. U.S. Treasury prices were lower.


Manufacturing and housing are leading the economy’s recovery from the pandemic recession. In a separate report on Friday, the National Association of Realtors said existing home sales rose 0.6% to a seasonally adjusted annual rate of 6.69 million units in January.

Economists polled by Reuters had forecast sales would fall 1.5% to a rate of 6.61 million units in January. The second straight monthly increase in sales was despite contracts to buy a home declining for four consecutive months. The NAR attributed the misalignment to different sample sizes.

Home resales, which account for the bulk of U.S. home sales, surged 23.7% on a year-on-year basis. The gains have defied tight supply, which has led to a surge in house price inflation. Sales last month were concentrated in the mid-to-upper price range of the market. Sales fell in the Northeast and West. They, however, rose in the South and the Midwest.

“Existing home sales will remain strong but will be unable to move significantly higher until more supply appears,” said David Berson, chief economist at Nationwide in Columbus, Ohio.

The housing market is being driven by still historically low mortgage rates, and demand for spacious accommodations for home offices and schooling.

There were a record-low 1.04 million previously owned homes on the market in January, down 25.7% from one year ago. The median existing house price shot up 14.1% from a year ago to $303,900 in January.

At January’s sales pace, it would take 1.9 months to exhaust the current inventory, down from 3.1 months a year ago. A six-to-seven-month supply is viewed as a healthy balance between supply and demand.

Chicago teachers threaten to stop working over district’s reopening plan

By Brendan O’Brien

CHICAGO (Reuters) – Chicago teachers threatened to stop working altogether if the district retaliates against any of them who failed to report to school buildings on Wednesday to prepare to resume in-person learning for tens of thousands of students next week.

Chicago Teachers Union (CTU), which represents 25,000 public school educators, has been locked in negotiations with Chicago Public Schools (CPS) for months over a plan to gradually reopen schools for the system’s 355,000 students. Teachers are demanding stronger safety protocols to prevent the spread of the coronavirus inside the classroom.

The labor dispute came to a head on Sunday when the rank and file union membership voted 71% in favor of a resolution not to return to the classroom and to remain teaching remotely until a stronger health and safety agreement is reached.

Despite the vote, the district ordered some 10,000 teachers to report to work on Wednesday, instead of Monday as initially planned. Some 70,000 elementary and middle school students who opted to take classes both in-person and online are due to return at the beginning of next week.

“Of course we take your health and safety incredibly seriously,” Chicago Mayor Lori Lightfoot said to teachers during a news conference on Tuesday night. “But you need to work with us, you need to talk to your leadership, because we can’t get there unless we get there together.”

As of early Wednesday afternoon, it was unclear how many teachers reported for work at their schools. The district and union were not immediately available for comment.

In a message to teachers on Tuesday night, the union said that if the district takes action against teachers who did not report, members will stop working altogether on Thursday and picket, the Chicago Tribune reported. CTU President Jesse Sharkey said that if the district took disciplinary action, union delegates would decide whether to set a strike date.

The district also canceled in-person classes on Wednesday for 6,500 pre-kindergarten and special education students who were given the option to take classes in their school as part of the CPS’s reopening plan. Those students began in-person classes on Jan. 11.

The district has yet to announce when high school students will have the option to return to school buildings.

Similar labor battles have unfolded across the country, pitting teacher unions against district officials over conditions for reopening, almost a year after the virus shut down schools for 50 million students nationwide.

The possible work action in Chicago comes 15 months after the city’s teachers staged an 11-day strike over overcrowded classrooms, support staff levels and pay.

In the current dispute, the union contends that classrooms lack proper ventilation and that the district has failed to provide cleaning supplies and personal protective equipment. The district says ventilation meets industry standards for classroom learning and that it would provide schools with adequate PPE.

The union has urged school and city officials to move quickly to vaccinate teachers. Inoculations are expected to begin in mid-February.

The union also wants the district to make accommodations for teachers who have family members who have medical conditions. It also wants the CPS to spell out metrics to determine when to open and close schools, according to the union.

(Reporting by Brendan O’Brien in Chicago Editing by Cynthia Osterman and Matthew Lewis)

U.S. graduates turn regalia into PPE: Wear the cap, donate the gown

By Barbara Goldberg

(Reuters) – In this year’s mostly virtual commencement ceremonies, thousands of American graduates are adorning their mortarboards with the slogan “Gowns 4 Good” after donating their gowns to healthcare workers fighting the coronavirus pandemic to use as personal protective equipment.

Gowns 4 Good is the name of a charity started three weeks ago by Nathaniel Moore, a front-line physician assistant in Burlington, Vermont, who is asking graduates to donate their gowns to more than 75,000 front-line responders and others who have registered for the regalia on Gowns4Good.net.

Across the country, school graduations have been canceled to abide by social distancing rules, including Moore’s own ceremony at the University of Vermont, where he was earning an MBA with a focus on sustainability.

“The image of my colleagues on the front line and at other medical facilities that lack the appropriate PPE and wearing trash bags with no sleeves and no protection under the waist, that just struck me,” Moore, 30, told Reuters.

After researching Centers For Disease Control and Prevention guidelines for PPE in times of shortage, he launched the non-profit with the slogan, “Wear the Cap, Donate the Gown.”

Gowns worn backwards, with the zippered opening in the rear and the high collar in the front, fit the CDC requirements for covering “critical zones,” including forearms, chests, stomach and waistline, Moore said.

“We are getting cries for help – from New York City emergency departments that have hundreds of patients coming in a day and they have no adequate gown protection to assisted living facilities that are sending us pictures of their staff without gowns,” he said.

In keeping with the tradition of graduates decorating their caps to express their individuality, those who donate their gowns are using the Gowns 4 Good logo to draw attention to the cause.

On Wednesday, Gowns4Good.net listed more than 75,000 gowns requested by medical facilities, more than 4,100 gowns donated by individuals and more than 1,500 gowns donated by institutional partners, including a regalia manufacturer.

Nearly 4 million people are expected to graduate from U.S. colleges in the 2019-2020 academic year, according to educationdata.org.

With much of the nation locked down, hundreds of schools have announced they will either cancel, postpone or stage virtual ceremonies.

Before the crisis hit the United States, Graduation Source in Greenwich, Connecticut, one of several cap and gown suppliers nationwide, received about 2 million orders for regalia for this spring’s graduation season, a spokesman said.

But the cancellations of graduation ceremonies have been changing that number daily, he said, although he declined to release an updated number.

Even gowns that students wear for a virtual graduation in the living room or back yard can be donated as PPE. But recipients are advised not to use the regalia before the three days that researchers say the virus can remain active on clothing, Moore said.

Among the most poignant donations were gowns sent by parents who included notes saying their sons and daughters died years ago, before they had a chance to graduate, and their regalia was just too precious to give away – until now.

“It’s the gown that has been sitting in their closet collecting dust but is too sentimental to do anything with,” Moore said.

“Now this is an honorable donation. So they can feel good about where it’s going.”

(Reporting by Barbara Goldberg; Editing by Dan Grebler)