Manufacturing Economy Shows an Upturn in March
The ISM and PMI reports also showed further upward pressure on prices -- not the 'good data' the Fed wants to see.
You've reached your free article limit
You've read 0 of 1 free Pro articles.
* Both the ISM and S&P Global PMI reports showed an upturn in the manufacturing economy during March
* However, both also showed further upward pressure on prices – not the “good data” Powell and the Fed want to see
* While good for the economy and the current market narrative, this data supports our view rate cuts will slip into 2H 2024.
The manufacturing economy turned up in March, that’s according to both S&P Global and ISM in their final March Manufacturing PMI reports. Both reports also found further upward pressure in prices as well as strengthening new orders and improving job growth compared to recent months.
Putting it all together, while these back-to-back reports on manufacturing activity are positive for the economy, they are another set of data that tells us the Fed will not be rushing to cut interest rates. In Friday’s Roundup, we discussed how the January and February PMI data signaled the outcome of the CPI data for those months.
Should the March Services PMI data out later this week mimic what we saw today, especially on selling prices, odds are high we will not see much improvement in the March CPI or PPI data. That won’t be the kind of “good data” the Fed is looking for. At the same time, a pick-up in hiring for the Service sector would also support a strong jobs market, another factor that would signal a strong economy and something that would also do little to prompt the Fed to start cutting rates.
In this morning’s opening comments, we discussed the high investor expectations for the market. While this morning’s data is good for the economy and earnings, it supports our view rate cut expectations are likely to move into 2H 2024 and the expected number of cuts will decrease to potentially two from three. Will today’s data be enough to pull the market sharply lower?
Our thinking is “no”, but as we touched on, if the rest of the week’s data blows past consensus expectations, the market’s coming to terms with what it means for Fed policy could challenge an exuberant market mood. As the coming data is published, we have our plan for the portfolio, and we would welcome an opportunity to buy quality companies with superior earnings growth prospects at better prices.
Here are the key points from both of this morning’s March Manufacturing PMI reports:
ISM
* The Manufacturing PMI® registered 50.3 in March, up 2.5 percentage points from the 47.8 percent recorded in February and well ahead of the 48.4 consensus.
ISM®’s New Orders Index expanded for just the third time in 22 months in March, registering 51.4, an increase of 2.2 percentage points compared to February’s reading of 49.2 percent.
*The ISM® Prices Index registered 55.8, 3.3 percentage points higher compared to the February reading of 52.5 percent, indicating raw materials prices increased in March for the third month in a row after eight consecutive months of decreases.
S&P Global
* The seasonally adjusted S&P Global US Manufacturing PMI came in at 51.9, down modestly from February’s 52.2 figure and the Flash March figure of 52.5. Nevertheless, this was the third consecutive month above the expansion/contraction line at 50.0.
* Manufacturers recorded a solid and accelerated rise in production during March, with the rate of growth the sharpest in almost two years. Stronger demand was also evident in data for new orders, which showed an increase for the third month running.
* Meanwhile... "the impact of rising labor costs was mentioned as a factor pushing up selling prices at a number of manufacturers. As a result, the rate of output price inflation quickened for the fourth month running to a sharp pace that was the fastest in just under a year… Input costs increased sharply, with the rate of inflation ticking up from that seen in February. Higher oil and raw material costs, plus increased transportation rates, reportedly added to cost burdens at the end of the first quarter. Meanwhile, the impact of rising labor costs was mentioned as a factor pushing up selling prices at a number of manufacturers.”
