Flash PMI Reveals Inflation Pressures Picking Up, 'Modest' Job Losses
Supply chain woes start to hit as energy prices take toll.
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We expected today’s March Flash PMI report would be one of the most important pieces of economic data since the start of the recent war on Iran. And with its insights on inflation, we still believe it's pretty important.
Remember that coming into this report, the market’s expectation for a rate cut in 2026 was wiped from the board, and the probability of a potential rate hike this year crept up. And let’s also consider the upward move in oil prices we touched on in our opening comments today, as well as the moves higher in gas, diesel, jet fuel, and related energy prices over the last few weeks.
Related: The Market Will Bottom When Investors Scoff at the Idea of a Rally
With the table set, S&P Global’s March Flash PMI showed the Manufacturing part of the domestic economy ticking up compared to February, while the services sector grew at a slower-than-expected pace. Digging a wee bit deeper, we find the following:
Average input costs meanwhile rose at a sharp rate again, posting the largest monthly increase for ten months and feeding through to the largest increase in average selling prices since August 2022. Higher prices were widely linked to the war-related spike in energy costs and tightening supply conditions. Supplier delivery times in manufacturing lengthened to the greatest extent since October 2022.
Not surprising. We should also expect to see similar findings from ISM’s upcoming March data as well as in the March consumer price index and producer reports out in the next few weeks.
Turning to the Fed’s other area of focus, the employment market, S&P’s Flash March data found a modest drop in employment, the first since February 2025. The keyword for us is “modest,” as it’s not likely enough to overpower the Fed’s renewed focus on inflation pressures. More insight on the pace of March job creation will come in ISM’s March data as well as the March employment report. We’ll give you a heads up that the March employment report will be published on April 3, which is one of the few U.S. stock market holidays.
S&P’s findings also indicated a surge in purchasing activity, with the largest jump since last June. Our instinct is that this was more to get out ahead of potential supply chain issues than the underlying strength in the economy. Supporting our thinking, S&P found supply delays were more widely reported by manufacturers than at any time since October 2022.
As we re-read the above, the words “duration, duration, duration” are winding through our thoughts.
At the time of publication, the Pro Portfolio had no position in any security mentioned.
