–ISM: Ukraine War Behind Dramatic Rise in Prices Index
–ISM: More Firms are Concerned About Rising Prices
–ISM: Manufacturers’ Concerns Over Delivery Delays Eased from February
–ISM: Fed Rate Hikes Long-Term Headwind but Positive for Inflation Now
By Max Sato
The US manufacturing sector index compiled by the ISM posted the first drop in two months, falling to an 18-month low of 57.1 in March after rising to 58.6 in February from 57.6 in January. It was the lowest since 55.4 in September 2020.
The new orders index plunged 7.9 points to 53.8 in March from 61.7 in February, hitting the lowest level since 32.2 in May 2020 during the first wave of the pandemic, but the main index stayed above the breakeven point of 50, indicating that the overall economy expanded for the 22nd consecutive month.
“The U.S. manufacturing sector remains in a demand-driven, supply chain-constrained environment,” Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, summarized in a statement.
The recent economic slowdown in Europe and a Covid resurgence in China that has prompted lockdowns in some cities are behind a 3.9-point drop in the new export orders index to 53.2 in March from 57.1 the previous month, he told reporters.
Fiore also told reporters that the ISM’s March survey showed that many respondents were concerned about rising prices but concerns about delivery delays had eased from February.
The prices index stood at 87.1 in March, up a sharp 11.5 points from 75.6 percent in February, while the supplier deliveries index fell 0.7 point to 65.4 from 66.1, indicating a slight easing in delays.
Asked about the impact of the protracted war in Ukraine, Fiore replied that it has caused a price surge in a wide range of energy and commodities items, as seen in a “dramatic” rise in the prices index.
The Federal Reserve’s resolve to fight inflation with a series of interest rate hikes appears to be a net positive factor for US manufacturers as it is expected to bring down high levels of prices, which are the main concern, Fiore said.
The Fed rate hike by 25 basis points on March 16, which raised the federal funds rate target range to a range of 0.25% to 0.50%, was a “conservative” move, and thus “was not a shock,” he said. The Biden administration’s decision to release a large amount of crude oil from the Strategic Petroleum Reserve could also help ease high energy costs, he added.
Markets and the manufacturing industry are “not overly concerned” about the prospects of a series of Fed rate hikes at this point, Fiore said.
“In the long term, I think everybody believes that would be a headwind to expansion,” he said. “But I don’t think anybody is concerned in the calendar year 2022. That would be a 2023 issue.”
The March ISM data showed that improvement in the labor market failed to offset a slump in production.
The production index fell by 4 points to 54.5 in March from 58.5 in February, hitting the lowest since 34.0 in May 2020. The employment index rose 3.4 points to a one-year high of 56.3 in March from 52.9 in February.
The backlog orders Index fell to 60 from 65. The Inventories Index rose to 55.5 from 53.6.