US manufacturing activity held up in February, the first of this week’s high profile economic numbers suggested.
At 58.6, the ISM headline (figure below) matched the highest estimate from nearly six-dozen economists. Consensus was 58.
Gauges of production and new orders both rose, with the latter hitting 61.7, the highest since September.
The final read on IHS Markit’s manufacturing gauge for the US was 57.3, down slightly from the flash read.
“The US manufacturing sector remains in a demand-driven, supply chain-constrained environment,” ISM’s Tim Fiore said, in a press release. “The Omicron variant remained an impact in February; however, there were signs of relief, with recovery expected in March.”
Price gauges on both the ISM and Markit surveys moderated, while remaining elevated. “Demand is clearly continuing to run well ahead of supply, meaning it is a sellers’ market for a wide variety of goods,” IHS Markit’s Chris Williamson remarked, adding that while “the survey’s price gauges covering companies’ costs and selling prices are off the peaks seen last year, they remain very high by historical standards and point to persistent elevated inflation in coming months.”
Note that some analysts expect US PMIs to decelerate meaningfully in the months ahead, potentially presaging additional declines for equities (figure below).
I’ve never been sure that apples-to-oranges comparison makes sense, but it certainly looks good depending on the historical look back you choose. And there’s obviously a link between economic activity and market sentiment. I just personally think there are better ways to capture it that are less vulnerable to allegations that the time series aren’t comparable.
In any case, the real question for the survey data going forward is obviously whether the conflict in Ukraine will exacerbate input cost pressures and weigh on business and consumer psychology.
IHS Markit’s Williamson captured it well. “With the survey data collected prior to the escalation of the conflict in Ukraine, the full impact of the situation is yet to appear in the data,” he said Tuesday. “Supply chains are likely to be further disrupted, with existing shortages exacerbated by safety stock building, and prices will likely come under further upward pressure,” he added, before cautioning that “the effect on business optimism and whether the improvement in prospects seen in February will be reversed” is perhaps the most important consideration of all.
And that, as they say, is that.
