- by New Deal democrat
Most official data series remain about one month behind their normal schedule, despite the government shutdown having ended over three months ago. Thus the ISM manufacturing and services reports, as well as the regional Fed manufacturing and services reports, remain the most timely overall barometers of the economy.
In the past few months the regional Fed manufacturing reports have painted a picture of a sector recovering from the impact of tariffs - which continued to be the case in the February reports. This morning the ISM manufacturing report once again confirmed those trends. But also added one renewed source of concern.
To begin with, the headline number declined -0.2 from 52.6 to 52.4. These have been the two highest reading since August 2022:
The three month average, which I use for forecasting purposes, rose to 51.0, the first time this average has shown expansion since January of last year (recall that 50 is the dividing line between expansion and contraction).
The more forward looking new orders component, which in January exploded from 47.4 to 57.1, settled back only slightly in February to 55.8, still a strong reading:
The three month average is now 53.3, indicating a respectable increase in production in the next few months.
Even employment, which has remained a problem child in this series, continued to trend “less bad,” rising from 48.1 to 48.8:
The three month average did remain contractionary, at 47.2.
But the new cause for concern is the sudden spike in prices. These had already been a concern, in view of the tariff situation. In the latter part of last year, these readings had declined into the 50’s, indicating pricing pressure, but not nearly so much as last spring. This month the prices paid reading blew out from 59.0 to 70.5:
This was the highest monthly reading since June 2022, suggesting that substantial inflationary pressures are building — not a good thing especially when so much of the economy appears to have been stagnating.
As I have continued to note each month, for the economy as a whole the weighted index of manufacturing (25%) and non-manufacturing (75%) indexes is more important. With the exception of one month last year, the services indexes remained in expansion. So I won’t bother with calculating the economically weighted averages today: with both sectors showing expansion, the ISM indexes indicate the economy is likely in expansion now, and the new orders component is positive for the next several months.
But as I concluded last month, and is even more true after today’s report, the caveat remains the important stagflationary pressures which have been showing up in almost all the recent data.
