Two mixed manufacturing PMI reports point to a worrying theme: skyrocketing prices!

On Monday, U.S. manufacturing activity unexpectedly expanded in March for the first time since September 2022, as production rebounded significantly, demand strengthened, and input costs climbed.

The U.S. dollar index continued to rise, approaching the 105 level. Non-U.S. currencies generally weakened. U.S. 5- to 30-year Treasury yields rose by at least 10 basis points across the board. Spot gold turned lower during the day, losing the $2,230 level, falling more than $30 from the day's high, which was a record high.

Data showed that the U.S. March ISM manufacturing PMI rose 2.5 points to 50.3. Although just above the 50 boom-or-bust line, the index halted a 16-month streak of contraction, the longest since August 2000 to January 2002. The March index exceeded all expectations from institutions' surveys of economists. U.S. purchasing and supply chain executives have recently expressed optimism.

In terms of data sub-items, the forward-looking new orders index rose from 49.2 in February to 51.4, reflecting resilient consumer demand and business investment, and indicating that companies have made progress in aligning inventory levels with sales.

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Factory output also rebounded, with the production index soaring from 48.4 last month to 54.6. The disruption of Red Sea shipping by Houthi militants in Yemen did not affect the supply chain. The supplier delivery rate fell from 50.1 last month to 49.9, with a reading below 50 indicating faster delivery speeds.

Nevertheless, the factory price index did rebound, rising from 52.5 in February to 55.8. The employment index remained in contraction territory but rose from 45.9 in February to 47.4. However, this indicator is useless in predicting manufacturing employment numbers in the closely watched non-farm employment report.

Before the release of the U.S. March ISM manufacturing PMI, the U.S. manufacturing PMI data released by S&P Global was disappointing, falling from the preliminary 52.5 to 51.9.

However, it is worth noting that a common theme in both surveys is the soaring prices.

S&P Global pointed out that the rise in oil and raw material costs, coupled with increased transportation expenses, increased cost burdens at the end of the first quarter. The impact of rising labor costs is considered a factor driving the price increases of many manufacturers' sales. According to the survey, the payment price index soared to its highest level since July 2022.Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, stated that the final S&P Global Manufacturing PMI indicated further improvement in the business environment in March, which is encouraging and further suggests that the U.S. economy appears to be expanding steadily again in the first quarter. He said, "A key development in recent months has been the economic recovery spreading from the service sector to manufacturing, with the recovery in goods demand driving the fastest increase in factory output since May 2022.

As companies increase capacity to meet demand, job growth has also accelerated. Increased capital spending has also boosted machinery and equipment orders, further indicating that businesses are more confident about the outlook.

However, this "improvement" comes at a cost. Williamson pointed out, "The economic turnaround has been accompanied by an increase in producers' pricing power. In March, the average selling price of producers hit a new high in 11 months, as factories passed on cost increases to customers, far above the pre-pandemic average. Most strikingly, consumer prices have risen sharply, at a pace not seen in 16 months, emphasizing that the path to reducing inflation to the Federal Reserve's 2% target may be bumpy."