Daily Commentary

MarketMinder’s View: After entering expansion territory in March, April’s Institute for Supply Management (ISM) manufacturing purchasing managers’ index (PMI) fell -1.1 points to 49.2—signaling contraction (below 50) for the sector again. Also receiving attention, the prices paid subindex rose 5.1 points to 60.9, its highest since June 2022. As the article relates, “The readings indicate US manufacturing is struggling for traction after some optimistic signs earlier this year for the industry’s outlook. Producers continue to battle headwinds of higher interest rates, elevated input costs and sluggish overseas markets.” While not great, a few things to note. First, manufacturing is a small slice of the US economy. Its prior struggles didn’t hinder overall growth. Two, PMIs measure breadth, not magnitude—for growth and prices. Readings below 50 aren’t necessarily contractionary if the output of the minority of firms reporting growth outweighs those shrinking. Similarly, a rise in the index of prices paid doesn’t reveal how much more firms are paying—just that more saw higher prices, which could be a little or a lot. Lastly, S&P Global’s manufacturing PMI measure, while directionally similar to ISM’s, fell -1.9 points to 50—again, not great, but a sign that the overall manufacturing backdrop is more “meh” than in major trouble. Broadly flat manufacturing activity to start Q2 leaves a lot to be desired, but it is a condition the economy has weathered fine—and stocks are well familiar with.

MarketMinder’s View: Judging by South Korean exports—a bellwether for global trade—world shipping has bounced back in a big way. The country’s exports soared 13.8% y/y in April, accelerating from March’s 3.1%, for their seventh straight month of growth. Leading the upswing: semiconductors’ 56.1% y/y leap, suggesting the chip cycle may have turned higher. Also notable: Korean exports to the US rose 24.3% y/y to hit a record, overtaking exports to China for a third month. Now, these trade data are still backward looking and just confirm activity that forward-looking global stocks have long since pre-priced. But we think it illustrates global commerce’s resilience, an example of reality proving better than initially expected.

MarketMinder’s View: Many ascribe undue influence to energy price swings’ impact on different facets of the economy, from inflation to consumer spending. But as the chart in this short article shows, energy isn’t the key factor it was over 40 years ago, when it comprised almost 10% of households’ consumption basket. “In general, energy expenditures as a percent of PCE [personal consumption expenditures] has been trending down for decades. ... In March 2024, energy expenditures as a percentage of PCE were at 4.1% of PCE, up from 4.0% in February, and down from the recent peak of 5.2% in June 2022. This is close to the pre-pandemic level of PCE.” If you hear higher oil and pump prices are keeping inflation elevated or will ding consumers’ discretionary spending, keep perspective and scale the impact accordingly. The overall economic effect may not be as sizeable as you imagine.