Unpacking the ISM Manufacturing Data and What It Means for Investors | Episode 107 | 03-01-2024

On this episode of Markets with Megan, economic insights that could influence your investment strategies as Megan Horneman, Chief Investment Officer at Verdence Capital Advisors, breaks down the  findings of the latest ISM Manufacturing Report. With the manufacturing sector showing signs of contraction for a record-breaking 16 months, we're analyzing what this means for the economy's health and a potential recession. Megan discusses the concerning downturn in new orders and the parallels in employment levels to those seen during the challenging days of the pandemic.

As the economy slows, inflation continues to loom, posing a challenge to both the markets and the Fed's monetary policy. Megan explains the unexpected reversal in the prices paid component, which suggests inflation pressures remain persistent despite broader economic headwinds. This episode is an essential listen for anyone looking to stay ahead in these changing economic times, providing a comprehensive look at the confluence of manufacturing woes and inflationary challenges.

Watch today's episode here:

Hello, this is Megan Horneman, the Chief Investment Officer for Verdence Capital Advisors. We're coming to you today, Friday, March 1st, with our regular segment of Markets. With Megan, we're going to talk about some of the economic data that we received this morning. We got a lot of information on the consumer. The biggest report that we got today was on the ISM Manufacturing Report. It comes out the first day of every month and this measures the health of our manufacturing sector.

The ISM Manufacturing Index is typically a recession indicator as well. When this index falls below 50, that means that the manufacturing sector is contracting. This index unfortunately came in lower than expected and it's been contracting now in contraction territory for 16 consecutive months. This is the longest consecutive streak that we've seen this index in contraction territory since 2001. Let's dig into some of these details. The majority of the categories are also in contraction territory, but the biggest declines were in new orders. This is a negative from an economic standpoint. It was the biggest percentage drop we've seen since September of 2022. The employment component this is also a negative for the labor market, specifically in the manufacturing sector. That is at the lowest level. It's hovering near the pandemic levels that we saw, so very weak from an employment standpoint.

One area of this that is still elevated and above the level between contraction and expansion is the prices paid, and that's inflationary. This is something that's concerning to us. It's something that should concern the Federal Reserve, because the economy is slowing. The data we've seen is that it's slowing pretty rapidly, but all of these inflation indicators are still stuck. We've had a lot of progression here in inflation, but we're showing some signs of stalling here. Where we are. When you look at that component that now has been above 50, so in expansion in territory or rising, for the past two consecutive months, and that's after we saw it contracting for eight consecutive months. Inflation is going the wrong way from a manufacturing standpoint. We'll continue to be back next week with some more economic data. If you have any questions or comments, please feel free to reach out to podcast at Verdence dot com. Thank you.