CDI Economic Summary: US manufacturing turning the corner

Kevin Swift


CHARLOTTE, North Carolina (ICIS)–The US remains an outlier among advanced nations and continues to power forward. Inflation has moderated and central banks are eyeing rate cuts later this year. Global manufacturing has stabilized and is recovering in most major economies.

Output is strongest in emerging economies. There are signs that China’s recovery has re-engaged and that Europe’s economy may be stabilizing, with recovery later this year. The US economy is outperforming most other developed countries, keeping the dollar strong.

Based on a string of hotter-than-expected readings on inflation, it appears that interest rates will be higher for longer.

The headline March Consumer Price Index (CPI) was up 3.5% year on year and core CPI (excluding food and energy) was up 3.8% year on year. Progress on disinflation appears to be stabilizing.

Economists expect inflation to average 3.1% this year, down from 4.1% in 2023 and 8.0% in 2022. This is above the US Federal Reserve’s target of 2%. Inflation is forecast to soften to 2.3% in 2025. As a result, interest rate futures are now moving towards fewer cuts. The case is even being made for no cuts.

Turning to the production side of the economy, the March ISM US Manufacturing PMI came in at 50.3, up 2.5 points from February and above expectations. This expansionary reading ends 16 months of contraction in US manufacturing.

Production moved back into expansion, as did new orders. Order backlogs contracted at the same pace. Inventories contracted at a slower pace, which could provide a floor for output. The long and deep destocking cycle could be ending, with the possibility for restocking later this year.

Nine of the 18 industries expanded and demand remains in the initial stages of recovery, with obvious signs of improving conditions. The ISM US Services PMI fell 1.2 points to 51.4, a reading indicating slower expansion.

The Manufacturing PMI for Canada remained in contraction during March while that for Mexico expanded for the sixth month. Brazil’s manufacturing PMI expanded for a third month.

Eurozone manufacturing has been in contraction for 21 months. However, the region appears to be skirting recession. China’s manufacturing PMI was above breakeven levels for the fifth month. Other Asian PMIs were mixed.

Turning to the demand side of the economy, light vehicle sales eased in March, and although inventories have moved up, they still remain low. Economists see light vehicle sales of 15.8 million this year, before improving to 16.3 million in 2025. The latest cyclical peak was 17.2 million in 2018. Pent-up demand continues to provide support for this market.

Homebuilder confidence is guardedly optimistic. Housing activity peaked in spring 2022 before sharply falling by July 2022. From then and into mid-2023, housing reports were mixed.

ICIS expects that housing starts will average 1.45 million in 2024 and 1.50 million in 2025. We are above the consensus among economists.

Demographic factors are supporting housing activity during this cycle. There is significant pent-up demand for housing and a shortage of inventory. But mortgage interest rates have moved back up in recent weeks and will hinder affordability and, thus, demand.

Nominal retail sales made another solid gain in March. Sales growth was marked across most segments. Sales at food services and drinking establishments also advanced. Spending for services is holding up, but the overall pace may be slowing.

Job creation continues at a solid pace, and the unemployment rate is still at low levels. There are 1.4 vacancies per unemployed worker, off from a year ago but at a historically elevated level. This is still fostering wage pressures in services. Incomes are still holding up for consumers.

Our ICIS leading barometer of the US business cycle has been providing signals that the “rolling recession” scenario in manufacturing and transportation may be ending. The services sector continues to expand, albeit at a slower pace.

Real GDP rose 5.8% in 2021 and then slowed to a 2.5% gain in 2022. The much-anticipated recession failed to emerge and in 2023, the economy expanded by 2.5% again.

US economic growth is slowing from the rapid pace in the third and fourth quarters, but those gains will aid 2024 performance of an expected  2.4% increase. The slowdown in quarterly economic activity suggests that in 2025, the economy should rise by 1.8% over average 2024 levels.


Global News + ICIS Chemical Business (ICB)

See the full picture, with unlimited access to ICIS chemicals news across all markets and regions, plus ICB, the industry-leading magazine for the chemicals industry.

Contact us

Partnering with ICIS unlocks a vision of a future you can trust and achieve. We leverage our unrivalled network of industry experts to deliver a comprehensive market view based on independent and reliable data, insight and analytics.

Contact us to learn how we can support you as you transact today and plan for tomorrow.