ISM manufacturing survey is the latest sign of disinflation
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In early 2023, signs of slowing inflation abound.
Why it matters: Inflation is the most important issue facing investors, as it will determine what the Fed does to interest rates, which will in turn drive stock and bond prices.
What's new: A December reading on the U.S. manufacturing sector showed factory activity slowing down — and importantly, the prices that producers paid their suppliers fell broadly.
- The survey's reading on prices paid fell to its lowest level since the COVID crisis struck, suggesting a strong downdraft in the cost of industrial ingredients.
State of play: The ISM figures were just the latest in a string of numbers that show a pronounced easing of the inflationary forces that hammered markets in 2022. (See natural gas for example.)
- Yes, but: More data is required to confirm early inklings that price increases are leveling. (Sometimes data can get squirrelly at year-end and send false signals.)
The bottom line: These indicators are encouraging, but what really matters is when the Fed thinks the inflationary threat has been beaten back conclusively.
- The latest minutes from the Fed's meeting last month — published Wednesday — suggest officials want a lot more evidence before declaring victory.
