The Econoday factory sector activity index (EFSAI)* rises to 13.0 in March from 6.1 in February and 5.2 in January. The reading suggests broad, if modest, upward momentum in the US factory sector, at least through mid-month.
The EFSAI is derived from results of regional Federal Reserve surveys of manufacturing business taken through midmonth. The Fed district surveys show faster growth in most reports, and a smaller number hovering around the neutral mark. The Fed reports are seasonally adjusted but some of the improvement can be attributed to milder weather conditions after unusually bitter cold and storms slowed things down for much of the US in January and February.
The watchword for the March data on activity in the factory sector is “caution.” The attack on Iran on February 28 and the lengthening of the war present significant risk to the US economy that could take months to be fully felt or understood. The Fed district bank surveys are taken for activity up through about the middle of the month and cannot reflect more recent developments. In particular, the near-term impact on energy prices is only beginning to be felt. More broadly, increased uncertainty about the geopolitical environment will drag on decision-making about investments in plant and equipment, and increasing or decreasing payrolls. It may require waiting until April for more clarity about current conditions and the economic outlook.
The EFSAI has strong correlations** with the major national indexes for activity in the factory sector. In both cases it points to an increase from the February data.
The S&P manufacturing purchasing managers index had a flash reading of 52.4 for March, up from the final 51.6 in February and the same as 52.4 in January. The Econoday survey consensus does not look for a revision to the flash estimate for March.
The ISM manufacturing index was essentially unchanged at 52.4 in February from 52.6 in January when it was the first back-to-back months above the 50-mark since July-August 2022. March should hold near there.
The S&P final manufacturing index for March is set for release at 9:45 ET on Wednesday, April 1 (flash index for March 52.4). Consensus forecast is 52.4 for March.
The ISM manufacturing index for March is set for release at 10:00 ET on Wednesday, April 1. Consensus forecast is 52.3 for March.
*The EFSAI is an average of seasonally adjusted indexes from the Federal Reserve district bank surveys of manufacturing that includes smoothing for month-to-month volatility. The districts correspond with about 48 percent of the US labor force. An index above 0 indicates expanding activity and below 0 indicates contracting activity.
**S&P PMI for manufacturing correlation 0.808, ISM manufacturing 0.888.
