US manufacturing showed signs of recovery by recording its first growth since September 2022, according to industry data released on Monday (1/4). Positive demand and strong output helped stop 16 consecutive months of contraction.
This data shows that the US economy still has staying power despite rising interest rates. This is good news for President Joe Biden ahead of the presidential election in November.
However, the data also shows the challenges the US Federal Reserve faces in balancing efforts to lower interest rates without triggering a new spike in inflation.
ISM Manufacturing Index Shows Expansion
The Institute for Supply Management (ISM) reported that the manufacturing index reached 50.3% in March. A reading above 50 points indicates expansion, while below 50 points indicates contraction.
This figure was well above market expectations which expected the contraction to continue. In February, the manufacturing index stood at 47.8%.
Demand and Output Increase
The head of the ISM survey, Timothy Fiore, explained that growth in the manufacturing sector was driven by positive demand, strengthening output, and accommodative inputs.
“Demand is still in the early stages of recovery with clear signs of improving conditions,” Fiore said.
He added that production execution increased compared to January and February.
Four Largest Manufacturing Industries Grow
Four of the six largest manufacturing industries, including food, beverages, and tobacco products, posted growth in March. This helped propel the overall economy into its 47th consecutive month of expansion.
ISM Services Index Slows
Meanwhile, the ISM services index slowed slightly last month, but still showed 14 consecutive months of expansion.
Economist Optimistic
Oxford Economics US economist Matthew Martin said that the ISM manufacturing report in March showed many positives.
“Comments from panelists in March painted an encouraging picture, with strong demand and hopes for improvement,” Martin said.
He added that the increased demand should not lead to a sustained price spike as seen during the pandemic.
