US: ISM SIGNALING THEME PRECEDING RECESSION

The ISM Manufacturing PMI Index dropped from 47.7 in February to 46.3 in March. Analysts at Wells Fargo point out that while some parts of the service sector demonstrate resilience to the fastest rate hikes in a generation, the message from today's ISM manufacturing index is that the factory sector is reeling.

“The ISM manufacturing report for March was a dud. Not only was the headline index at its lowest since 2020, every sub-component was below the breakeven 50 for the first time since 2009. All but two (production and customer inventories) were lower versus the prior month.”

“The closest thing we get to good news in today's report is that the slowing in the factory sector is pushing prices lower and supply chains are continuing to heal, benefiting from the slack.”

“The rest of the themes were those that often precede an economic recession: new orders and production are contracting, so much so that production is being transitioned to deal with backlogs.”

“We expect tighter financial conditions and growing uncertainty around recession are weighing on firms' desires to invest. The recent stress in the banking sector led to a sharp tightening in financial conditions, and we expect banks will tighten lending standards as a result. Manufacturing activity was slowing before the recent stress, and we expect tighter conditions will contribute further to that slowdown in investment spending.”