Fast-forward almost two months and a lot of those concerns had subsided, bringing the focus in markets back to the economic nitty-gritty.
With many markets shut for International Labour Day, the U.S. Institute for Supply Management (ISM) will have a limited – and possibly nervous – audience for its April index of manufacturing activity.
March’s deterioration in U.S. manufacturing activity delivered a nasty shock to those hoping the economy would weather increasingly entrenched inflation and the fastest rate-hiking cycle in decades that has hit the banking sector so hard.
A Reuters poll of economists offers a forecast of 46.7 for the ISM manufacturing index, which would mark an improvement on March’s three-year low of 46.3, but it would still be the sixth straight month of contraction.
The index hasn’t spent this long below the 50 mark since the financial crisis in 2008. Employment is down, and new orders have dropped sharply, as have work backlogs, which point to a worrying collapse in demand.
In fact, when the March number was released in early April, Deutsche Bank noted that there have only been four instances where the ISM manufacturing reading was this low without a recession in the following 12-18 months – the early 1950s, 1967, the mid-1990s and right after the 2000s recession. The bank says at this point, recession is inevitable.
Some of the world’s biggest industrial bellwethers are telling a fairly downbeat story too.
Heavy machinery maker Caterpillar and 3M Co, which makes anything from Post-It notes to smartphone displays, and chemical manufacturer Dow Inc are all having to respond to slowing demand and a challenging macro outlook.
But it’s not all grim. Deutsche Bank also noted that the tone of the commentary in the last ISM report wasn’t as dire as the headline numbers, which suggests Corporate America isn’t entirely pessimistic.
Plus, inflation is coming down, the economy is still growing, and a weaker dollar makes U.S. exports more competitive. April might bring some spring cheer after all.
