US Manufacturing Survey Signals Continued ‘Expansion’ But Inflation Fears Soar

After Friday’s (tariff-front-running-import-surge-driven) tumble in Atlanta Fed’s GDPNOW accelerated growth scare anxiety in bonds (and stocks), this morning we see US Manufacturing PMI surge back into expansion (52.7 – better than the expected 51.6) – its strongest level of implied growth since June 2022 (despite the slide in US Macro Surprise data over the past month).

The ISM Manufacturing survey, on the other hand, disappointed, falling from 50.9 to 50.3 (50.8 exp)…

Source: Bloomberg

Under the hood, it was ugly with new orders tumbling as prices paid surged to the highest since June 2022…

Source: Bloomberg

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, notes that there are signs this surge in growth expectations will be short-lived:

“A rise in the PMI to a 32-month high signals an improvement in the health of the manufacturing sector which may only be skin deep. 

“Although manufacturing production grew at the strongest rates since May 2022 and new orders increased at the best pace in a year, there’s much to suggest that this improvement could be short lived. 

Production and purchasing were often buoyed by companies and their customers building inventory to beat price hikes and supply issues caused by tariffs. Exports have meanwhile slumped and supplier delivery delays were the most common since October 2022 amid disruptions to trade caused by tariff worries. 

Optimism fades:

“Business optimism about the year ahead has consequently fallen compared to the buoyant mood evident in January, with February seeing an increase in the number of companies citing concerns over tariffs and other policies introduced by the new Trump administration. 

And inflation fears are spreading:

“Worries have noticeably swelled in relation to the inflationary impact of tariffs, which were widely reported as having caused factory input costs to spike higher in February. These higher costs are being passed on to customers, resulting in the strongest factory gate price inflation recorded for two years, which manufacturers fear may in turn not only damage sales in the coming months but also encourage the Fed to take a more hawkish view of inflation.”

Not a pretty picture… Stagflation it is, for now!