🥵 Off the boil

Plus: Oil surprise | Monday, April 03, 2023

Open in app View in browser   Presented By Advisor   Axios Macro By Neil Irwin and Courtenay Brown · Apr 03, 2023 New numbers out today point to a continued slowdown in manufacturing activity. It's just the beginning of March's data dump that begins to trickle out this week, including the big jobs report out Friday. We dig into the data below, plus take a look at what a surprise spike in energy prices means for the Fed and the White House. 🛢️ Today's newsletter, edited by Javier E. David, is 642 words, a 2½-minute read.     1 big thing: Manufacturing comes off its high boil Data: FactSet; Chart: Axios Visuals So far in 2023, the flow of economic data has been a story of ups and downs: first, with several weeks of signs that the economy was slowing and inflation fading, then several weeks of data suggesting boom times were still here. With the first significant economic release of April (reflecting March activity), we're back on the downward part of the roller coaster. Driving the news: The Institute for Supply Management's manufacturing activity fell to 46.3, the lowest since May 2020's 47.7. Numbers below 50 indicate contraction, and by this index, manufacturing has been contracting for four straight months. The falloff was even steeper in some key forward-looking ISM components, including big drops in new orders, inventories and employment. Why it matters: The survey is the latest confirmation that the economy really is coming off 2022's high boil, despite a continued robust job market and other signs of strength. Between the lines: For the moment, the details of the ISM data look not so much recessionary, but more like things coming into a healthier balance in manufacturing. That was evident in a steep decline in reported price pressures, which fell below 50, and falling backlogs and inventories. At the same time, several categories of goods have continued shortages, particularly electronic components. What they're saying: "New orders are starting to soften and supplier deliveries are improving slightly," said one electrical equipment manufacturer that participated in the survey. "This is allowing us to reduce [our] backlog and build a buffer in some categories." "The supply chain disruption — particularly in electronics — is still significant compared to pre-pandemic conditions," the respondent said. "Sales a bit down, and budgets being cut with a greater emphasis on savings," a chemical products manufacturer said. Of note: "We are closely monitoring the global banking situation, but no impacts have been experienced or are expected at this time," said one manufacturer of miscellaneous goods. The bottom line: "Softening demand for goods has paved the way for manufacturers to trim payrolls and lighten up their production schedules – the combined effect of which is clear as the manufacturing malaise spreads," said Jim Baird, chief investment officer of Plante Moran Financial Advisors, in a note.     A message from Advisor Never make another financial decision alone     We all have that sinking feeling we're missing out on opportunities with our money. Advisor.com offers expert financial planning and investing for a flat annual fee. Whether you have $0 or $1M in investments, you pay one rate for the same white glove service. Take our quiz to see if you need an advisor.     2. Oil surprise Illustration: Shoshana Gordon/Axios   At the very least, the decision from the world's biggest oil producers to slash energy production might make things slightly more complicated for Fed officials who are looking for more disinflationary forces, not fewer. It's also a less-than-ideal development for the White House. Oil prices are soaring after the announcement. As of 11:45am ET today, U.S. crude prices were up roughly 6% to $80.30 per barrel — rebounding to levels seen before the banking crisis began in March. What they're saying: "We don't think cuts are advisable at this moment given market uncertainty - and we've made that clear," a spokesperson at the White House National Security Council said in a statement. Worth noting: The backdrop is much different than last year. Oil prices have fallen notably from the most recent peak of around $120 per barrel last June. One reason for that decline: the Biden administration's decision to draw down the Strategic Petroleum Reserve, releasing more oil supply into markets. OPEC's move and the jump in oil prices point to a rapidly closing window for the Biden administration to begin refilling the emergency supply of oil at the desired price level. What to watch: There are some macroeconomic developments that, for now, might suggest more economic demand than previously anticipated — indicating more potential upside for oil prices separate from OPEC's move. "I would've expected somewhat higher oil prices anyway with China coming back sooner than expected during the first half of 2023 and with Europe skirting recession," St. Louis Fed president Jim Bullard told Bloomberg Television today. He added that stronger activity in the U.S. also created an upside risk for higher energy prices.     A message from Advisor Never make another financial decision alone     We all have that sinking feeling we're missing out on opportunities with our money. Advisor.com offers expert financial planning and investing for a flat annual fee. Whether you have $0 or $1M in investments, you pay one rate for the same white glove service. Take our quiz to see if you need an advisor.   Are you a fan of this email format? 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