WASHINGTON (Reuters) - U.S. manufacturing activity slowed slightly in January, while a measure of prices paid by factories for raw materials and other inputs jumped to its highest level in nearly 10 years, strengthening expectations inflation will perk up this year.
The Institute for Supply Management (ISM) said on Monday its index of national factory activity fell to a reading of 58.7 last month from 60.5 in December. A reading above 50 indicates expansion in manufacturing, which accounts for 11.9% of the U.S. economy. Economists polled by Reuters had forecast the index at 60 in January. The ISM revised data going back to 2012.
Manufacturing has been driven by strong demand for goods, like electronics and furniture as 23.7% of the labor force works from home because of the COVID-19 pandemic. But spending on long-lasting manufactured goods fell for a second straight month in December, government data showed on Friday.
With the distribution of vaccines to fight the coronavirus expected to broaden and accelerate, spending on services is likely to pickup by summer. That could see a slowdown in manufacturing activity from current levels.
The ISM's forward-looking new orders sub-index fell to a reading of 61.1 last month from 67.5 in December. Factories also saw a moderation in export orders. Despite the cool off in orders, factories increased hiring last month.
The survey's manufacturing employment gauge rose to 52.6 from 51.7 in December. That raises hope for a rebound in hiring this month after the economy shed jobs in December for the first time in eight months.
But bottlenecks in the supply chain continued driving up costs for manufacturers. The survey's prices paid index jumped to a reading of 82.1 last month, the highest since April 2011, from 77.6 in December.
That supports predictions of a pick-up in inflation in the coming months, though high unemployment could limit manufacturers' ability to raise prices. Employment is still 10 million jobs below the pre-pandemic peak.