A slight risk off move came into financial markets after the ISM manufacturing survey came in lower than expected, as it effectively trended down in the wrong direction.
The ISM Manufacturing PMI decreased to 46.3 in March of 2023, the lowest since May of 2020, and compared to 47.7 in February and a consensus of 47.5 implying that rising interest rates and growing recession fears are starting to weigh on businesses.
The reading pointed to a fifth straight month of contraction in factory activity, as companies continue to slow outputs to better match demand for the first half of 2023 and prepare for growth in the late summer/early fall period.
New orders (44.3 vs 47), employment (46.9 vs 49.1) and backlogs of orders (43.9 vs 45.1) shrank faster. Also, production continued to decline (47.8 vs 47.3), inventories moved to contraction territory (47.5 vs 50.1), and supplier deliveries were the lowest since March 2009. At the same time, price pressure eased further 49.2 s 51.
The Nasdaq weakened on the back of the soft ISM report and the US dollar currency gained a slight bid. However, a neutral PMI manufacturing reading stabilized things.
The S&P Global US Manufacturing PMI came in at 49.2 in March 2023, broadly in line with the earlier released ‘flash’ estimate of 49.3 and above February’s 47.3.
The latest reading pointed to the weakest pace of contraction in the US manufacturing sector in the current five-month sequence of decline, as output rose for the first time since last October, albeit at a slower rate, and employment increased modestly.
Meanwhile, new orders continued to fall, with new export sales down for a tenth successive month, as higher interest rates and inflationary pressures hit demand. Manufacturers also engaged in cost-cutting initiatives as input buying and pre-production inventories fell.
Weak demand for materials drove the quickest improvement in lead times on record. On the price front, average cost burdens and output charges rose the least since July 2020 and October 2020, respectively. Finally, business confidence slipped to a three-month low.