{"id":185900,"date":"2023-03-01T12:17:25","date_gmt":"2023-03-01T17:17:25","guid":{"rendered":"https:\/\/ibkrcampus.com\/?p=185900"},"modified":"2023-03-01T16:05:11","modified_gmt":"2023-03-01T21:05:11","slug":"ism-data-show-contracting-employment-and-accelerating-prices","status":"publish","type":"post","link":"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/macro\/ism-data-show-contracting-employment-and-accelerating-prices\/","title":{"rendered":"ISM Data Show Contracting Employment and Accelerating Prices: Mar. 1, 2023"},"content":{"rendered":"\n

The Federal Reserve’s goal of taming inflation while maintaining a strong labor market hit a setback this morning: Manufacturing ISM data shows the resurgence in price increases is strong while manufacturing employment is contracting.<\/p>\n\n\n\n

While still assessing yesterday\u2019s batch of troubling economic data<\/a>, investors are facing the cold and somewhat contradictory reality of a continuing decline in manufacturing, a big jump in input costs and a loss of jobs. February\u2019s Manufacturing ISM PMI remained in contraction territory despite climbing to 47.7, which fell short of the forecasted 48 headline number but was up from 47.4 in January. The lower than 50 number shows that manufacturing is contracting, which implies that demand destruction is occurring thanks in part to the drastic, quick shift from accommodative to restrictive monetary policy alongside the transition from goods spending to services. In a perplexing development, however, the ISM Manufacturing Prices Paid Index, at 51.3 for February, has made a huge upward leap from January\u2019s 44.5 number. Four consecutive months of declining input prices have now been reversed as buyers acquiesce early in the new year to seller explanations of structurally higher inflation across their supply chains.<\/p>\n\n\n\n

As higher prices hit U.S. goods producers, manufacturers are tightening their belt by cutting back on labor, with the ISM Manufacturing Employment Index falling from 50.6 in January to 49.1 in February. Higher financing costs, furthermore, have caused a 0.1% month-over-month decline in construction spending, despite the expectation for an increase.<\/p>\n\n\n\n

Markets started today\u2019s trading between modest gains and losses for equities; however, the mood transitioned after the 10 a.m. release of the daunting ISM report. Yields took the spotlight with the 10-year rising 9 basis points (bps) above pivotal resistance at 4% and the 2-year reaching fresh cycle highs of 4.9%. The S&P 500 Index is down 0.5% to 3950, right above the pivotal 200-day moving average at 3940. Interest rate sensitive tech is faring much worse than cyclical industrials with the Nasdaq Index down 0.8% and the Dow down only 0.1%. Crude oil is down 0.1% to $77 a barrel despite sizzling hot economic data from China earlier this morning. China\u2019s strong economic recovery pales in comparison to rising U.S. inventories and buoyant supply as the Kremlin\u2019s oil output recovers to pre-sanctions level, at least for now. The dollar index is down 25 bps against the backdrop of a stronger euro driven by accelerating inflation and significantly higher yields.<\/p>\n\n\n\n

Supply Chain Woes Persist<\/strong><\/h2>\n\n\n\n

Supply chains continue to be a major hurdle in controlling inflation. Broadly speaking, shipping costs from Asia to the U.S. have receded after climbing dramatically during the COVID-19 pandemic, but transatlantic shipping prices are still high. Other factors are contributing to higher logistics costs.<\/p>\n\n\n\n