The manufacturing sector grew faster in March than expected on the heels of strong production activity and new orders, according to the Institute for Supply Management survey released on Monday.
The March data should not so much be seen as a sign of strength to come but rather as a catchup to what the hard data on manufacturing goods had been showing in recent months.
The March data, though, should not so much be seen as a sign of strength to come but rather as a catchup to what the hard data on manufacturing goods had been showing in recent months.
For example, goods spending and inflation rose in February, according to recent government data, while sentiment from the ISM survey respondents remained under water on the month. But this sentiment rebounded in March, hitting positive territory at 50.3, slightly above the neutral level that signals expansion. It was the first number above 50 since September 2022.
The subindex on prices paid also grew, surging to 55.8 from 52.5 in March and catching up with the spike in goods inflation, which rose a sharp 1.2% in February, according to the most recent producer price index report.
The rebound in manufacturing follows a long period of stress because of rising interest rates. A couple more months of similar good data would mean the sector’s bottom should have passed, just as the Federal Reserve has signaled that it intends to cut rates.
The turnaround in manufacturing production and goods demand in general might also spell a small headache for the Fed as the rebound in goods inflation should keep overall inflation higher than expected if service inflation remains sticky.
But overall inflation could ease if housing inflation falls substantially this summer as housing price data is suggesting. And that requires nothing but more patience from the central bank, which has limited tools to deal with housing prices.
Read more of RSM’s insights on the economy and the middle market.
Underneath the top-line ISM figure, inventory data showed mixed results. Overall inventories contracted at a slower rate while customers’ inventories fell at a faster pace.
The employment subindex also fell at a slower pace yet has remained negative for six months in a row. That is consistent with our forecast that the manufacturing sector will lose 10,000 jobs in the coming monthly jobs report this Friday.
