–ISM’s Fiore Downplays Manufacturing Index Drop to 46.3, Saying, ‘We’ve Only Lost 3 to 4 Points in Past 5 to 6 Months’
–Fiore: Manufacturing Index Now Seems to Be in Range of 46 to 49, Probably in Q2, Too, Down from Earlier Range of 48 to 52
–Fiore: Demand Pickup Expected for July, August May Now Be Delayed
–Fiore: March Manufacturing Survey Shows No Signs of Tighter Lending Amid Banking Failures
By Max Sato
The ISM survey also indicated equal levels of activity toward expanding and contracting head counts amid mixed sentiment about the return of growth early in the second half of the year.
The sector index compiled by the ISM, which shows general direction, fell 1.4 percentage points to 46.3 after edging up to 47.7 in February from 47.4 in January for its first rise in six months. The latest figure is below the median economist forecast of 47.5.
Regarding the overall economy, this figure indicates a fourth month of contraction after a 30-month period of expansion. The ISM’s manufacturing PMI reading above 48.7, over time, generally indicates an expansion of the overall economy.
The index has been on a gradual downtrend since June 2022. It remains the lowest since May 2020, when the index at 43.5 was recovering from a recent low of 41.8 the previous month during the first wave of the pandemic. The all-time low is 29.4 hit in May 1980.
“With Business Survey Committee panelists reporting softening new order rates over the previous 10 months, the March composite index reading reflects companies continuing to slow outputs to better match demand for the first half of 2023 and prepare for growth in the late summer/early fall period,” Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, said in a statement.
“New order rates remain sluggish as panelists become more concerned about when manufacturing growth will resume,” he said.
Last month, Fiore said the February index “reflects companies continuing to slow outputs to better match demand for the first half of 2023 and prepare for growth in the second half of the year.”
Fiore told reporters that the timing of the pickup in demand appears to be delayed from earlier expectations of July to August.
“Companies appear to be much more willing to reduce their headcounts. The only reason they want to do that is they are not really sure about demands two to three to four to five months ahead,” he said.
At the same time, Fiore downplayed the recent setback in the manufacturing index. “We’ve only lost three or four points in the last five or six months,” he said, referring to the index being stable at 50.0 in October and in expansion at 51.0 in September last year. The sector performance is pretty much the same whether it is assessed in seasonally adjusted or unadjusted measures, he said.
The index was in a range of 48 to 52 previously and is now in a range of 46 to 49, and will be probably so in the April-June quarter, Fiore said.
On the outlook for a pickup in the second half of 2023 anticipated by manufacturers late last year, he said, “Q1 hasn’t been bad. We will see what Q2 brings.”
“The probability of July and August being strong months is probably being pushed out,” he predicted. “They (companies) were more looking at Q4 increased activity levels.”
Fiore also told reporters that there are no signs of tighter lending in the March survey amid bank failures, although he added that capital investment plans appear to be delayed.
Of the five subindexes that directly factor into the manufacturing PMI, none were in growth territory.
The new orders Index contracted for the seventh consecutive month, falling 2.7 points to 44.3 in March after rebounding 4.5 points 47.0 in February.
The production index reading of 47.8 is a 0.5-point increase compared to February’s figure of 47.3.
“Orders and production are fairly flat month over month,” a firm in the computer and electronic products category told the ISM. “Lead times have stabilized in most areas, so looking at reducing commitments on new orders, except for a few strategic electronic buys with lead times that are still too long.”
A fabricated metal producer said its overall first quarter sales are better than planned but that sales volume is pulling down its automotive original equipment manufacturer (OEM) side, which is the majority of its business. “We believe the second quarter will be hard but are holding to our outlook,” the firm said.
The employment index registered 46.9 in March, 2.2 points lower than the February reading of 49.1, indicating employment contracted again, continuing a trend of weak performance since September 2022.
The delivery performance of suppliers to manufacturing organizations was faster for a sixth straight month in March. The supplier deliveries index registered 44.8, down 0.4 point from 45.2 in February. This month’s reading indicates the fastest supplier delivery performance since March 2009, when the index registered 43.2.
The inventories index registered 47.5 in March, 2.6 points lower than the 50.1 reported for February. Among other subindexes, the customers’ inventories index stood at 48.9 in March, up 2.0 points from 46.9 in February, entering the high end of a ‘just right’ level, a negative for future production.
The backlog orders index registered 43.9 in March, down 1.2 points from 45.1 in February, indicating order backlogs contracted for the sixth consecutive month after a 27-month period of expansion.
The prices index stood at 49.2 in March, down 2.1 from 51.3 in February, which was up 6.8 points from 44.5 in January. It dropped back into ‘decreasing’ territory after one month of increasing prices preceded by four straight months below 50. “Price instability remains, but future demand is uncertain as companies continue to work down overdue deliveries and backlogs,” Fiore said.
The manufacturing sector is in the sixth contractionary phase in the past 20 years. Previously, the ISM manufacturing PMI posted contraction just before the pandemic hit the global economy, from August to December 2019 and from March to May 2020. The deepest slump in the past two decades was recorded from September 2008 until July 2009 (the bottom was 34.5 in December 2008) triggered by the U.S. credit crisis.