Volatile Prices Highlight ISM Surprise, With Activity Mixed

Pricing for Wednesday's Fed decision edges slightly higher to locking in a 25bp hike (up to 95% implied now) following the April ISM Manufacturing report.

• The biggest surprise - and driving the hawkish rates move - is the 4 point rise in Prices Paid to 53.2 (highest since July 2022), vs expectations for 49.0.
• We'd caution this is a volatile series that tends to track commodity prices as much as anything - so while important, it partly reflects a bounce from the sharp drop in commod prices last year (Prices Paid bottomed at 39.4 in Dec when the 6-month % change in raw industrials and oil prices were dropping double digits - see chart). Though clearly, we're past the lows.
• It's still a weak overall figure, with the 5th consecutive month below the 48.7 mark that the ISM sees denoting overall economic contraction.
• Looking at activity, it's mixed. Employment went into expansionary territory for the first time since January (50.2, up from 46.9 prior). And new orders, while contractionary (45.7), has steadied out from January's lows, and production picked up for the 2nd consecutive month to 48.9. Backlogs and inventories fell further.