US Manufacturing Expands as Input Costs Surge

Summary

• US manufacturing PMI expanded to 52.7 in March from 52.4, but input prices surged to 78.3, the highest since 2022, indicating significant cost pressures.
• Employment in manufacturing remained contractionary at 48.7, consistent with ADP survey showing 11,000 job losses in the sector.
• New orders and production saw slight declines, pointing to potential softening in demand despite overall expansion.
• Geopolitical tensions, including Middle East unrest and issues with Iran, are already impacting business operations through increased lead times, costs, and container delays, as noted in survey comments.
• The manufacturing report is considered contemporaneous and reflective of current events, unlike backward-looking data such as February retail sales.
• Two-year Treasury yields rose to 380 basis points, up 1.5 bps, reacting to the inflationary spike in prices paid data.
• Despite higher energy prices and mixed data, the economy shows resilience without requiring immediate Fed rate cuts to prop up growth.
• Inflation expectations are rising, with St. Louis Fed President Albert Musallam indicating Fed preparedness to raise rates if inflation increases or cut if the economy weakens.
• Key uncertainty centers on how the Fed will react to balancing inflationary pressures against economic stability, with risks escalating on both sides.
• Overall, the data supports a Fed policy pause, with no clear impetus for near-term rate adjustments unless inflation accelerates markedly.