US: ISM declines, but stays above 50

In the US, the headline ISM manufacturing index fell to 50.9 in March from 52.3 in February. The fall was confirmed in the sub-indices, as output (53.0 vs. 54.1), new orders (51.6 vs. 54.9) and backlog of orders (47.0 vs. 51.5) all declined. Employment even fell back below the 50 mark to 48.7 from 51.1, the lowest since May 2005, which may put some downward risks to Friday??™s Payrolls report. Inventories recovered further suggesting that the inventory cycle is turning up again. Somewhat worrying for the Fed is that the prices paid component jumped from 59.0 to 65.5, as sustained elevated inflation levels may make it more difficult for the Fed to cut rates.

EMU: Manufacturing PMI slows further in March

In March, the manufacturing PMI declined slightly from 55.6 to 55.4. The threemonth average, which provides a better picture of the underlying trend, declined too from 55.9 to 55.5, the lowest since March last year. Most activity-related sub-indices tracked the down-move. The price components however gave a mixed picture, as input prices rose (66.1 vs. 64.2), but output prices fell (57.0 vs. 57.5). From a country specific point of view, only in France the PMI rose. Some slowing in expansion in the euro zone manufacturing PMI shouldn??™t surprise given the stage of the economic cycle and shouldn??™t therefore be too worrying the ECB. In the past, the ECB has however only hiked rates twice when the PMI was below the 55-level.

Other: UK manufacturing PMI falls

In the UK, the manufacturing PMI fell from 55.4 in February to 54.4 in March. The decline was most outspoken in the output component (54.5 vs. 56.9), while also new orders (57.1 vs. 57.6) and employment (51.4 vs. 52.1) declined. Export orders however reached its highest level since January 2004 at 55.8, which suggests that recovery in the UK manufacturing sector is increasingly export driven. On inflation, output price inflation moderated slightly in March (55.5 vs. 56.9), but input prices accelerated (62.3 vs. 61.2). The report won??™t bring a rate hike any closer, but won??™t prevent it either.