U.S. ISM illustrates the impact of stronger dollar

The modest decline in the ISM manufacturing index to a 12-month low of 51.5 in March, from 52.9, illustrates that the stronger dollar and soft overseas demand are still an obstacle for export-orientated producers. Other surveys indicate that the non-manufacturing sectors are still doing well, however, so the slowdown in manufacturing specifically is not overly alarming from a macro standpoint.

Looking at the detail, the new orders index fell to 51.8 in March, from 52.5. The new export orders index slumped to only 47.5, from 48.5, illustrating that the weakness in overall new orders is definitely linked to the stronger dollar. Otherwise, the production index actually rebounded to 53.8, from 53.7, suggesting that the unwinding of the bad weather distortion has translated into a bounce in output. Finally, the employment index edged down to 50.0, from 51.4. 

"The recent strength of employment growth has not been based on any manufacturing renaissance. It won't change the broader employment picture if the manufacturing sector adds a couple of thousand fewer jobs each month, particularly if other sectors are ramping up their hiring", said Capital Economics in a report on Wednesday.