The U.S. economy likely slowed in March.
The manufacturing index of the Federal Reserve Bank of Philadelphia fell for the seventh consecutive month. While the survey covers only the businesses in eastern Pennsylvania, southern New Jersey, and Delaware, it is a reliable indicator for factory activity across the country. When Philly Fed activity drops, so goes the nation.
Similarly, the Institute for Supply Management‘s index fell in March, the fifth the consecutive decline. The index came in at 46.3, down from 47.7 and below expectations for an improvement to 47.5. The index has been below 50, the threshold for contraction, for five months in a row. New orders, a critical measure of future production, fell sharply, and the measure of payrolls fell to its lowest reading since July 2020.
Despite the slowdown in manufacturing, the overall economy continues to run quite hot. The nonfarm payrolls on Friday showed the economy added 236,000 jobs in March even as the banking system convoluted. The unemployment rate fell back down to 3.5 percent, a level consistent with a booming economy.
There was no signal in the jobs numbers on Friday that would press the Federal Reserve to back off of raising rates. The fed funds futures now imply around a 75 percent chance of a rate hike at the next meeting. Unfortunately, the delusional market view is that there is no chance of another hike at the meeting after that, a view that is likely to be quite costly when the inflation numbers for March appear.