Last night’s ISM put the wind up forex markets:
“The April Manufacturing PMI® registered 60.7 percent, a decrease of 4 percentage points from the March reading of 64.7 percent. This figure indicates expansion in the overall economy for the 11th month in a row after contraction in April 2020. The New Orders Index registered 64.3 percent, declining 3.7 percentage points from the March reading of 68 percent. The Production Index registered 62.5 percent, a decrease of 5.6 percentage points compared to the March reading of 68.1 percent. The Backlog of Orders Index registered 68.2 percent, 0.7 percentage point higher compared to the March reading of 67.5 percent. The Employment Index registered 55.1 percent, 4.5 percentage points lower than the March reading of 59.6 percent. The Supplier Deliveries Index registered 75 percent, down 1.6 percentage points from the March figure of 76.6 percent. The Inventories Index registered 46.5 percent, 4.3 percentage points lower than the March reading of 50.8 percent. The Prices Index registered 89.6 percent, up 4 percentage points compared to the March reading of 85.6 percent. The New Export Orders Index registered 54.9 percent, an increase of 0.4 percentage point compared to the March reading of 54.5 percent. The Imports Index registered 52.2 percent, a 4.5-percentage point decrease from the March reading of 56.7 percent.”
This was well below the 65 expected. Though, at the end of the day, it was still very strong.
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Moreover, the internals were very strong, via Capital Economics:
The drop back in the ISM manufacturing index, to 60.7 in April from 64.7, appears to reflect intense and widespread supply constraints rather than a moderation in demand, a view which is underlined by the further surge in the prices paid balance last month.
The drop back in the headline index reflected a moderation across all the key sub-components but, at 60.7, it is still consistent with GDP growth of close to 6% annualised, so is hardly a sign that the recovery is at risk. Instead what really stands out in the April report is just how broad the squeeze in supply of key commodities and intermediate inputs has become, with respondents’ comments suggesting supply shortages are affecting almost every industry. That is reflected in the supplier deliveries time balance which, though it fell to 75.0 last month from 76.6, remains unusually elevated. The backlog of orders component, already at an all-time high, rose further to 68.2 from 67.5. Those supply constraints are feeding through to a big pick up in price pressures, with the prices paid index increasing to 89.6 from 85.6. On past form, that is consistent with CPI inflation almost doubling from 2.6% in March to 5% in the coming months.
The ISM is going to peak in the next quarter or so but I don’t think that this was it.