01 April 2010 at 8:01 GMT
Later today (14:00 GMT) the ISM Manufacturing Index will be reported for the month of March. We expect the national manufacturing PMI to remain unchanged at 56.5 while consensus looks for 57 (the lowest forecast is 54 while the highest is 59). The manufacturing sector has seen a strong rebound since the summer of 2009 and today’s report will point to an extension of the V-shaped recovery seen in this part of the economy.
When the recession set in businesses cut costs to remain competitive – or simply stay afloat. Especially wage costs and inventories were reduced to increase margins as revenues fell. With demand slowing picking up, however, companies – now lean and mean as evidenced by the last couple of quarters’ impressive profits – are increasing production and rehiring (albeit only slowing).
Whilst manufacturers generally lead the service sector out of a recession, the latter has barely started expanding (an ISM reading above 50 signals expansion). This shows that roughly 9/10 of the economy is still in a fragile state. Manufacturers can only keep the present expansion up for so long without a response from the much larger service sector. We have not seen this happen yet.
In addition, yesterday we got the regional PMI from Chicago, which went down to 58.8 from 62.6 (61 expected). The Chicago PMI general leads the national PMI fairly well though we saw a large difference in February where the national index went down 1.9 points while the regional equivalent increased 1.1 points.
We look for an unchanged ISM Manufacturing Index of 56.5, but that is still well into expansionary territory.