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Unexpected Decline in Manufacturing Growth Pulls Rates Lower

Rates turn lower following unexpected ISM manufacturing index decline
Treasury yields and swap rates turned lower after economic data showed manufacturing growth declined in April – the 10-year Treasury yield closing ~3 bps lower at 1.59%.  Major US equity indices closed higher on the day – the S&P 500 and DJIA rising a modest 0.3% and 0.7% on the day.
ISM manufacturing index falls to 60.7 in April
The figure fell from the all-time high of 64.7 set in March due to rising input costs and record backlogs.  Factory stockpiles fell at the fastest pace since August as demand continues to rise.  Despite the decline, a reading above 50 indicates growth in the manufacturing sector.
Fed Chair Jerome Powell believes the US economy is “not out of the woods yet”
In his speech earlier today, Powell commented that from a “high-level perspective” job creation and economic activity have shown significant signs of recovery, though from a “street level” perspective the pandemic has disproportionately affected certain groups of people.  In response, the Fed “is focused on these longstanding disparities” and will continue “to prioritize “maximum employment as a broad and inclusive goal.”
New York Fed President John Williams believes economy is far from Fed’s target inflation and employment levels
Though he believes the economy is on track to grow at the fastest pace since the 1980s, Williams made clear that “ the data and conditions we are seeing now are not nearly enough for the FOMC to shift its monetary policy stance.”  Williams estimates the Fed’s employment goals will be met in the coming months and inflation goals by the end of the year.

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