Jun 2, 2022 - Economy & Business

Factory sector shrugs off Fed rate hikes

Data: Factset; Chart: Axios Visuals

American factories are still in expansion mode, as clients continue to backfill giant holes in their inventories left by COVID-related supply chain snarls.

Why it matters: A manufacturing sector in strong health means a recession is not imminent, despite the Fed's efforts to slow the economy with rate hikes this year.

Driving the news: The Institute for Supply Management Purchasing Managers' Index for May was stronger than expected, the group reported Wednesday.

  • The index, one of the most closely watched leading indicators of the health of the U.S. economy, came in at 56.1, besting Wall Street economists' expectations of around 54.5.

How it works: Any number above 50 indicates expansion, while numbers below 50 show shrinkage.

  • New orders, a subcomponent of the index that offers some of the earliest indications on activity for the coming months, was also a stronger-than-expected 55.1.

Yes, but: Manufacturing employment actually contracted in May, the data show, with the ISM's manufacturing employment subindex slipping to 49.6, suggesting the Fed's efforts to tap the economic brakes are having some impact.

The bottom line: "Readings in May's range are regarded as consistent with solid growth in manufacturing output," wrote analysts from Barclays.

  • They foresee manufacturing "continuing to register healthy gains in the coming months with factories still struggling to keep up with demand amid sizable backlogs."
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