US Manufacturing Moves Into Expansion After 16 Months of Contraction

The ISM Manufacturing Index moves from contraction to expansion for the first time in 16 months.

US Manufacturing Moves Into Expansion After 16 Months of Contraction

Recent data from the Institute for Supply Management signals a promising shift in the U.S. manufacturing sector:

  • The index surged to 50.3 in March, marking a move from contraction to expansion.
  • Production leaped to 54.6, the highest since May 2022.
  • New orders climbed to 51.4, hinting at sustained momentum.

This rebound from a 16-month slump not only signifies a resurgence in manufacturing activity but also predicts a surge in diesel consumption, closely tied to the freight transport sector's heartbeat.

Post by Liz Ann Sonders, Chief Investment Strategist, Charles Schwab & Co., Inc.

Diesel Dynamics: Navigating Price Fluctuations

The narrative takes a twist as we bring in diesel prices, witnessing a recent dip to $3.996 per gallon. However, this number is a part of a larger, more complex story:

  • Diesel costs have escalated by 33% since 2019.
  • Contrastingly, spot rates for freight have only increased by 16%, highlighting a disparity in cost versus income for carriers.

This mismatch underscores a significant challenge, pointing towards an uphill battle for carriers striving to balance rising operational costs against stagnant revenues.

Looking Ahead: Anticipating Market Movements

As the narrative unfolds, the future of freight movement teeters on a delicate balance of supply, demand, and operational efficiencies. Key insights into the road ahead include:

  • Low diesel inventories coupled with a manufacturing revival suggest tighter fuel supplies and potential price increases.
  • Global events, like Ukraine's attacks on Russian refineries, could further strain diesel supplies, intensifying the challenges ahead.

Sources: EIA | Reuters | FreightWaves

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