What does Wednesday’s ISM Manufacturing PMI data mean for US economy?

With the ISM Manufacturing PMI creeping up to 47.7 from 47.4, the economic activity in the US manufacturing sector continued to shrink in February, though at a slower rate than it did in January. This figure was lower than the market forecast of 48.

The report’s supporting information showed that the Employment Index fell from 50.6 to 49.1 and the Prices Paid Index increased from 44.5 to 51.3. The New Orders Index eventually increased to 47 from 42.5.

Timothy R. Fiore, Chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee, commented on the survey’s findings: “new order rates remain sluggish due to buyer and supplier disagreements regarding price levels and delivery lead times; the index increase suggests progress in February.

In order to position themselves for a higher performance in the second half of the year, Fiore continued, “Panelists’ companies continue to seek to sustain head-count levels through the expected poor first half of the year.

The first reaction caused the US Dollar Index to edge up a little bit; it was last observed down 0.5% on the day at 104.42. The benchmark yield on a 10-year US Treasury bond increased above 4% for the first time since early November, further supporting the US dollar.

It’s important to note that the US manufacturing recession widened in January as the primary index fell for the third consecutive month and reached its lowest level since May 2020.

The data offers a new update on the manufacturing sector’s activity amid rising borrowing costs and growing doubts about a potential “soft landing,” particularly in light of Monday’s US Durable Goods Orders report, which showed a decline of 4.50% in January versus a predicted -4.0% drop and a 5.10% rise in December.

In addition to the US economic statistics, the Fed policymakers’ speeches will continue to be the key topic of discussion in light of the elevated expectations for higher rates for a longer period of time with strong US inflation.