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American manufacturers have been squeezed for the past two years by lingering supply-chain disruptions and high interest rates, but the industry finally expanded in March for the first time in 16 months, according to the Institute for Supply Management.
But a resurgence in the industry could complicate the Federal Reserve’s ongoing inflation fight, either delaying the first interest rate cut or resulting in fewer cuts this year, some economists say. Interest rates have been at a two-decade high since July, after the Fed raised rates aggressively over the prior year and a half.
ISM’s latest purchasing managers index for the US manufacturing sector, a monthly survey that gauges economic activity, rose more than expected in March to a reading of 50.3, the first time the index has registered above 50 since September 2022. A reading above 50 indicates expansion, while anything below reflects contraction.
President Joe Biden has signed into law major spending packages passed by Congress, such as a bipartisan infrastructure bill and the CHIPS and Science Act, allowing manufacturers to spend on new factories to ramp up production.
However, several Fed officials have said in recent speeches that persistent economic strength allows the central bank to remain patient and hold rates steady while they wait for more evidence that inflation is truly headed toward their 2% goal. Consumer prices were up 2.5% in February from a year earlier, according to the Fed’s favorite inflation measure.
“In the interim, I think it is smart for the Fed to take our time,” Richmond Fed President Tom Barkin said Thursday at an event in Richmond, Virginia. “No one wants inflation to reemerge. And, given a strong labor market, we have time for the clouds to clear before beginning the process of toggling rates down.”
San Francisco Fed President Mary Daly was asked Tuesday to directly weigh in on ISM’s latest manufacturing data during a moderated discussion in Las Vegas. She said it didn’t change her overall assessment of the US economy.
