Prices Gain, New Orders Fall
U.S. manufacturers' balancing act and the inflationary risks from gaining input prices.
Mobius Intel Brief:
May manufacturing activity surveys showed one persistent theme: declining new orders and elevated input prices. ISM’s headline manufacturing PMI notched a sub-50 print for the 18th time in 19 months, while S&P Global’s manufacturing activity measure remained in expansionary territory for the fifth consecutive month.
Higher production costs, declining new orders, and elevated freight prices are bearish for near-term 1) disinflation rates and 2) industrial distillate demand.
Front-month diesel cracks are down 52% from February. How do today’s cracks compare to their historical range?
Prices Gain, New Orders Fall
May’s headline manufacturing activity surveys showed diverging sentiment across the sector, with S&P Global’s U.S. Manufacturing PMI gaining 1.3 points to 51.3 and ISM’s U.S. Manufacturing PMI falling 0.5 points to 48.7.
Meanwhile, both S&P and ISM reported declining new orders in May, with ISM’s New Orders subindex falling 3.7 points to 45.4—the lowest reading in a year.
A second consistent theme across the two datasets was upside pressure on manufacturers’ input prices. ISM’s subindex for prices paid declined moderately from April’s 21-month-high of 60.9 to 57.0.
Survey results suggested manufacturers hoped to continue passing high input prices onto consumers, a move complicated by weaker consumer spending activity and substantial deterioration in household debt.
Furthermore, manufacturers are positioned for more price-related pain through the remainder of Q2. Global freight prices (via the FBX index) finished last week at $3,487/FEU, their highest since October 2022.
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