U.S. manufacturing activity exceeded expectations in March 2024, achieving its fastest growth rate since September 2022.

This has triggered an immediate rebound of the dollar, driven by a shift in expectations regarding interest rates, as traders now anticipate stronger economic data, potentially affecting the timing of rate cuts by the Federal Reserve.

March ISM Manufacturing PMI Report: Key Highlights

  • The Institute For Supply Management (ISM) data on the Purchasing Managers' Index (PMI) rose to 50.3 in March 2024, marking an increase of 2.5 percentage points compared to the previous month and surpassing expectations of 48.4.
  • New Orders also experienced growth, climbing from 49.2 to 51.4, an increase of 2.2 percentage points. This change suggests a resurgence in demand, moving from a contracting to a growing phase.
  • Production saw a significant boost, with its index increasing from 48.4 to 54.6, a jump of +6.2 percentage points. This reflects a strong recovery and growing output within the sector.
  • "Demand remains at the early stages of recovery, with clear signs of improving conditions. Production execution surged compared to January and February," said Timothy Fiore, chair of the Institute for Supply Management. Among the top six industries by contribution to manufacturing GDP in March, none had a PMI at or below 45, says Fiore.
  • "The upturn is, however, being accompanied by some strengthening of pricing power. Average selling prices charged by producers rose at the fastest rate for 11 months in March as factories passed higher costs on to customers, with the rate of inflation running well above the average recorded prior to the pandemic."
  • Prices of raw materials and goods moved up to from 52.5 to 55.8, marking 3.3 point change. This suggests that inflationary pressures within the manufacturing sector are intensifying.
Market Reactions: Stocks Weaken as Manufacturing Data Surprises

Following the release of the higher-than-expected manufacturing data, stock markets experienced a slight downturn. The S&P 500, tracked by the SPDR S&P 500 ETF Trust (SPY  ), dipped 0.1% for the day. Similarly, the Dow Jones, monitored through the SPDR Dow Jones Industrial Average ETF (DIA  ), saw a decline of 0.5%, after reaching a record high last Friday.

The U.S. dollar index, as tracked by the Invesco DB USD Index Bullish Fund ETF (UUP  ), rose over 0.4% as traders reassessed their monetary policy outlook.

Market-implied probabilities of a rate cut by June 2024 have tumbled to as low as 55% on Monday, down from nearly 70% as of last week.