Assessing Manufacturing Index Reports For Market Trends

The five Fed District Bank surveys of manufacturing for March point to overall weaker conditions in the factory sector. All five of the survey headline indexes are down in March. Only one remains in positive territory, and that only narrowly above neutral.   The average of the five headline indexes is down to -10.0 in March compared to -3.5 in February. The average has a solid correlation (0.892) with the ISM Manufacturing Index. The average points to another softening in the ISM index from 47.8 when the March data is released at 10:00 ET on Monday, April 1. Overall manufacturing is in a mild recession and has been for just over a year. #manufacturingsurveys   Please do not use without attribution. Copyright © Theresa A Sheehan

Source: Bloomberg #Research The ISM manufacturing PMI index came in with upside surprise in August, as the overall PMI reading rose to 47.6 from 46.4 last month & against 47.0 consensus estimates. The growth was fueled by the #production, #prices, and #employment components. The contraction was largest in inventories and second in new orders components. The below #Bloomberg chart shows the ISM manufacturing PMI at the current reading, as well as how far below each component is from “breakeven”. In the ISM’s #manufacturing PMI 50.0 is breakeven, production actually just got back to that reading from this most recent report. Anything below 50 is considered in contraction. Furthermore if the ISM's manufacturing PMI index falls below 45.0, historically thats the threshold where recession is thought of as essentially guaranteed. As observed below, all components noted are in contraction territory (ex-production, as mentioned). Inventories then new orders are the two biggest laggards, but employment and supplier deliveries are clearly in contraction territory as well. This chart only goes back to the late-1990s, so several cycles and a couple years preceding the tech bust. As you may notice in the chart below, for all cycles [ex-mid-1990s exception] that occurred throughout this time period, as well as many preceding this, a PMI reading of 47.6 from this latest ISM’s manufacturing PMI index is already consistent with historic recession-only territory. At the same time, I recognize a monthly increase of +1.2 & +0.6 above consensus estimate appears to be a substantial upside rebound. It is, this month. Upside surprises in monthly data are useful to take advantage if you’re someone who has a predetermined bullish bias. There can be many reasons for that and I'm not implying or suggesting it's wrong to have (at all). However if you’re objectively looking at the economic conditions and have an understanding of why the ISM manufacturing PMI, as well as all its components are all in contraction (ex-production at breakeven), you likely already understand it was caused by the “immaculate disinflation” attempt from Chairman Powell and the US Fed hiking rates in an attempt to curb surge #inflation. That same US Fed has been adamant that rate cuts are not even remotely on the table right now. Assuming the Fed has paused at an upper bound target of 5.5% for the longer-term, in my view we should certainly continue to see the ISM’s PMI contract further, until the US economy is in recession. #Economy #Markets #Finance #Macro

The ISM’s manufacturing report for March shows stagflation. The ISM manufacturing PMI slipped back into contractionary territory, registering 49.0 in March versus 50.3 in February. Below 50 readings indicate declining factory activity. The PMI has been stagnating for the past two years. The difference this time is the sharp runup in the prices index, which jumped to 69.4 in March from 62.4 in February. This is the fourth straight month of a higher reading and the highest since June 2022’s 78.5. The select industry comments from the ISM, as reported by Bloomberg News, exhibit fear and anxiety among manufacturers due to tariffs and uncertainty. “Complex markets saw a surge in volume buying in anticipation of 2025 being slightly better than 2024. In March, however, all markets saw a slowdown, with fear and inventory stocking to hold through a potential crisis.” — Chemical Products “Acute shortages continue to impact supply chain continuity. Chinese restrictions on critical minerals such as germanium have caused major shortages, resulting in all supply needed in 2025 already assumed — and, not surprisingly, significant price increases as a result. Tariffs are causing minor ripples at the moment in securing supply, with purchase order terms narrowing due to uncertainties.” — Transportation Equipment “Customers are pulling in orders due to anxiety about continued tariffs and pricing pressures.” — Computer & Electronic Products “Business condition is deteriorating at a fast pace. Tariffs and economic uncertainty are making the current business environment challenging.” — Machinery “New order levels have increased and are better than expected. We suspect that our customers are trying to build inventory at current prices to get ahead of expected tariff and related cost increases. We expect this surge in demand to be short-lived.” — Fabricated Metals “No evidence of growing demand. Tariff impacts and mitigation strategies are a daily conversation.” — Electrical Equipment, Appliances & Components “Worldwide economic instability has really begun to impact our oil and gas business.” — Petroleum & Coal Products “Bearish market sentiment and tariff applications and costs have dominated discussions over the past month and should continue to dominate markets until a clear path forward is determined. Overall concern is whether or not demand destruction will occur with higher pricing.” — Primary Metals

Manufacturing edging toward expansion [with corrected figure] The Institute for Supply Management's® Manufacturing Purchasing Managers Index (PMI®) for September is out. The index shows continuing contraction in manufacturing, but at only a marginal rate. 💡 The Manufacturing PMI® came in at 49, compared with 47.6 In August. This number is a diffusion index, which measures the difference between positive and negative responses. Because the September number is below 50, it indicates that slightly more purchasing managers are reporting contracting activity than those reporting expanding activity. The number tells us how widespread contraction is among responding firms, but not how severe the decline in activity is. ⬇ The manufacturing PMI® has been contracting now for eleven consecutive months, as the manufacturing part of the economy has fallen into recession. Manufacturing industrial production, reported by the Federal Reserve, has been lower than the previous year for the past six months. ⬆ The September figure of 49 continues an improving trend that began in July. According to ISM®, "A Manufacturing PMI® above 48.7 percent, over a period of time, generally indicates an expansion of the overall economy." In any case, the less widespread contraction give some hope that manufacturing weakness may soon ease. ⬆ The PMI® data also include more detailed sub-indexes. In September, the production index broke into positive territory after being flat in August. Slightly more respondents reported employment expansion than contraction. A larger proportion of respondents reported an increase in new orders, but order backlogs are shrinking. Prices paid for materials decreased more broadly in September, although the recent energy price could change that in coming months. The ISM® also reports an index for the the services sector. That one has been running in slight positive territory, consistent with other indicators that the service side of the economy has held up better than manufacturing. The September services PMI® comes out Wednesday. You can read more about the ISM® Report on Business® at their web site, https://lnkd.in/gD4hy76r. #ism #PMI #manufacturing #production  

The Institute for Supply Management (ISM) reported that June Manufacturing PMI® registered 48.5, down 0.2 points from May and a reading below expectations of improvement. The expansionary reading in March ended 16 months of contraction in manufacturing but since then, the trend has been soft. June marks a third contractionary reading and was disappointing. Only eight industries out of 18 expanded. The chemical industry gained for the sixth month after 16 months of decline. Overall manufacturing production fell back 1.7 points to 48.5, a contractionary reading. New orders were in contraction again with a 49.3 reading but moved towards breakeven. Order backlogs contracted at a faster pace (at a 41.7 reading). Both new orders and order backlogs, when combined with the reading on inventories, are good indicators of future activity. Inventories contracted at faster pace as well. An uptick in orders could translate into higher production.   The U.S. manufacturing sector is contracting further after a brief expansion in March. Demand remains subdued, as companies demonstrate an unwillingness to invest in capital and inventory due to current monetary policy and other conditions. Production was down, likely causing revenue declines, putting pressure on profitability. Customers’ Inventories were deemed as “too low’ which could be positive for future new orders. Prices continued to gain but at a slower pace. Prices are sensitive to changes in supply and demand and tend to provide a leading signal. Comments from industry respondents were mixed this report but a chemical industry respondent noted a “High volume of customer orders.”