Source: Economics Group of Wells Fargo Bank, N.A.
Summary
The ISM manufacturing index broke above 50 for the first time in sixteen months as manufacturers grow more optimistic. Activity is finding firmer footing with current production and new orders higher. But the tick higher in manufacturers’ prices paid highlights the increased importance of a slowdown in services inflation for the Fed.Signs of Better Days ‘Just on the Horizon’
The ISM manufacturing index surprised to the upside in March. Not only did it surpass the expectations of 55 forecasters who submitted to the Bloomberg Consensus, but it rose by the most in three years (up 2.5 points) to an expansionary-reading of 50.3 for the first time in 16 months (chart).
Despite the better-than-expected print for the headline index, the details were more mixed. New orders and production were up and consistent with expansion, but so too were prices paid. In short, a pickup in manufacturing activity is welcome news for the broader economy, but can be troublesome for the Fed if it acts as a headwind to the recent disinflationary trend in consumer price inflation.