US factory slump milder than forecast, rate-cut bets ease
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The news: US manufacturing activity shrank in April by the most in five months as lean order books and the repercussions from tariffs prompted the steepest output contraction since 2020, according to the Institute for Supply Management.
The numbers: The ISM’s manufacturing PMI fell to 48.7 from 49.0 in March, while the production index stumbled more than 4 points to 44.
The manufacturing PMI reading, however, was perceived as not as bad as expected, coming in aboce the 48 estimate from economists polled by Reuters.
Prices paid for inputs increased to 69.8, the highest since June 2022. Orders shrank for a third month and backlogs retreated at a faster pace.
The employment index ticked up but remained in contraction, as companies continued to release workers, the ISM said.
Eleven industries expanded, including apparel and petroleum, while six contracted.
The context: April is the second consecutive month the PMI registers a contraction, after a brief recovery in US manufacturing earlier in the year that had been driven by hopes of a less stringent regulatory environment from the Trump administration.
Instead, sweeping tariffs unveiled by the Trump administration are impacting operations and are being cited as problematic across all sectors, with firms reporting delayed shipments, pricing pressure and margin erosion.
US Treasury yields rose, with two-year yields—most sensitive to Federal Reserve policy—climbing 10 basis points to 3.7%, according to Bloomberg.
The move reflected a pullback in rate-cut expectations, with traders reducing their bets from 107 basis points of easing to around 90 basis points for the year, reflecting the data that didn’t come as weak as anticipated.
Bloomberg reported that some investors shifted toward trades that would benefit if the Fed refrains from cutting rates in 2025.
The sources: Institute of Supply Management, Bloomberg
