Dive Brief:

• Manufacturing slumped last month and job openings fell in February, signaling a softening in two key economic indicators amid persistent forecasts of recession.
• Available positions at U.S. employers declined to 9.9 million in February from 10.6 million the prior month, the Labor Department said Tuesday. The Institute for Supply Management said its manufacturing index fell to 46.3 in March from 47.7 in February, the lowest level since May 2020 and the fifth consecutive month the index has sagged below 50 — the threshold between contraction and expansion. 
• “Tough times lie ahead,” Pantheon Macroeconomics Senior U.S. Economist Kieran Clancy said, citing in part repercussions from the failure last month of Silicon Valley Bank and two other banks. “The surge in interest rates over the past year and the tightening in credit conditions brought about by the bank failures are dealing a huge blow to capital spending, the lifeblood of domestic manufacturing activity.”

Dive Insight:

A pullback in credit triggered by banking system turmoil may slow the economy much like an additional monetary tightening, Federal Reserve Chair Jerome Powell said March 22 after policymakers raised the federal funds rate to a range between 4.75% and 5%.

“Many forecasters are worried about how a credit tightening may happen and choke off economic activity,” Fed Governor Lisa Cook said Monday in response to questions at a University of Michigan forum.

“We see that credit tightening is happening,” she said, noting that the trend preceded by several weeks the March 10 collapse of SVB.

JPMorgan Chase CEO Jamie Dimon in an annual letter to shareholders Tuesday also voiced concern that banking turmoil has clouded the outlook for credit.

“While this is nothing like 2008, it is not clear when this current crisis will end,” Dimon said. “It has provoked lots of jitters in the market and will clearly cause some tightening of financial conditions as banks and other lenders become more conservative.”

Nearly two out of five banks (37.5%) reported tightening credit standards in a survey conducted by the Dallas Fed from March 21 until March 29. The district bank’s region encompasses Texas and parts of New Mexico and Louisiana.

“Credit standards and terms continued to tighten sharply, and marked rises in loan pricing were also noted over the reporting period,” the Dallas Fed said. “Banking outlooks continued to deteriorate, with contacts expecting a contraction in loan demand and business activity and an increase in nonperforming loans over the next six months.

In a possible sign the economy is slowing, new orders and inventories at manufacturers last month decreased the most among the components that underlie the ISM’s manufacturing index. Orders slid 0.7% in February in the third decline in the past four months, the Commerce Department reported Tuesday.

Job vacancies in February, as measured by the Labor Department’s Job Openings and Labor Turnover Survey, fell below estimates and indicated that demand for labor may be falling more in line with supply.

The ratio of job vacancies to unemployed workers declined to 1.67 in February from 1.9 in January.