–ISM Manufacturing Index 50.3 Vs. 47.8 in February; Median Forecast 48.3
–ISM’s Fiore Predicted Last Month Index to Rise Above Neutral Line of 50 in March or April
–Fiore: Employment Should Return to Expansion in May or June
–Fiore: Sharp Rise in Prices Index ‘Concerning,’ Federal Reserve Would Not Like it
–Fiore: No Major Impact of Baltimore Bridge Accident on Supply Deliveries
By Max Sato
(MaceNews) – U.S. manufacturing activity posted the first expansion in 17 months in March as the key index popped just above the neutral line of 50, thanks to recovering new demand and production and slower contraction in employment, data from the Institute for Supply Management released Monday showed.
The sector index compiled by the ISM, which shows general direction, rose 2.5 percentage points to 50.3 in March after falling 1.3 percentage points to 47.8 in February and rising 2.0 points to 49.1 in January. It was stronger than the median economist forecast of 48.3 but Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, predicted last month that the index would rise above 50 in March or April, citing solid fundamentals.
“Demand remains at the early stages of recovery, with clear signs of improving conditions,” Fiore said in a statement. “Production execution surged compared to January and February, as panelists’ companies reenter expansion. Suppliers continue to have capacity but are showing signs of struggling, due in large part to their raw material supply chains.”
New orders fell in February due to unfavorable effects of annual seasonal adjustments that had pushed them up in January. Fiore said last month that the February figure would have been just above 49 without unfavorable seasonal factors.
Fiore told reporters on Monday that new orders and production are unlikely to fall back into negative territory in coming months, and predicted that employment conditions should recover to expansion in May or June. Fiore does not expect seasonal adjustments to cause major distortion in the foreseeable future, saying, “We beat (any unfavorable effects of) seasonal adjustments in new orders in March.”
He called the prices index for March, which rose to the highest level since July 2022, “concerning.” The Federal Reserve would not like this number, Fiore said, but added that it is consistent with the recent PCE (personal consumption expenditures), consumer and producer price index data.
Asked about the impact of persistent inflation on the central bank policy and economy, Fiore said, “If interest rates stay where they are for longer, not a big deal; if interest rates are up, that could be an issue.”
Asked if the recent accident at Baltimore’s Francis Scott Key Bridge could cause a delay in supply deliveries, Fiore replied, “I don’t see a huge impact here” because there are alternative shipping routes. The Port of Baltimore is a U.S. East Coast hub and the collapsed bridge has blocked the passage of bulk and car carriers.
Among the five subindexes that directly factor into the manufacturing PMI, the new orders Index rebounded 2.2 percentage points to 51.4 in March after falling 3.3 points to 49.2 in February and rising 5.5 points to 52.5 in January. It is back in positive territory after posting the first growth in 17 months in January.
The production index jumped 6.2 points to 54.6 in March after dipping 2.0 points to 48.4 in February and rising 0.5 point to 50.4 in January.
The employment index contracted for the sixth straight month but it rose 1.5 points to 47.4 after slipping 1.2 points to 45.9 in February. Companies are continuing to reduce head count through layoffs (which account for 76% of reduction activity, up from 50% in February), attrition and hiring freezes. “Panelists’ comments in March were again equally split between companies adding and reducing head counts,” Fiore said. “This approximately 1-to-1 ratio has been consistent since October 2023.”
The delivery performance of suppliers to manufacturers was “faster” after being “slower” in February and “faster” in the previous 16 months. The supplier deliveries index edged down 0.2 point to 49.9 in March after rising 1.0 point to 50.1. This is the only ISM subindex that is inversed; a reading of above 50 indicates slower deliveries, which is typical as the economy improves and customer demand increases.
The manufacturing inventories index contracted for 14 months. It rose 2.9 points to 48.2 in March after falling 0.9 point to 45.3 in February.
Among other subindexes, the customers’ inventories index showed contraction (below 50) for the fourth straight month, falling 1.8 points to 44.0 in March after rising 2.1 points to 45.8 in February. It indicates the level is “too low,” remaining at a level accommodative for future production.
The prices index indicated growth for the third month in a row after showing the first increase in nine months in January, when member firms agreed to pay higher costs for some commodities. It rose 3.3 points to a 20-month high of 55.8 in March (the highest since 60.0 in July 2022) after dipping 0.4 point to 52.5 in February and surging 7.7 points to 52.9 in January.
The backlog orders index stayed below 50, and thus in contraction, for 18 months. It was unchanged in March after rising 1.6 points to 46.3 in February, reaching the highest since 50.9 in September 2022. It slumped 5.6 points to 37.5 in May 2023, which is the lowest since the Great Recession (33.6 in February 2009).
The new export orders index was in expansion territory for the second consecutive month after contracting for eight months through January. It was unchanged in March after surging 6.4 points to 51.6, hitting the highest since 52.6 in July 2022, and falling 4.7 points to 45.2 in January. It rose 0.2 point to the neutral level of 50.0 in May 2023, which was preceded by nine straight months in contraction territory and 25 months of expansion from July 2020 to July 2022.
The ISM main index had been on a downtrend since it fell 2.7 points to 53.4 in June 2022 but it seems to have hit bottom in June 2023 at 46.4, 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 pandemic high was 64.0 recorded in March 2021. The all-time low is 29.4 hit in May 1980.
To assess the overall economic climate, the latest ISM survey indicates the overall economy grew for the 47th straight month after one month of contraction in April 2020. The ISM’s manufacturing PMI reading above 42.5, over time, generally indicates an expansion of the U.S. economy. The March survey showed that 30% of manufacturing gross domestic product contracted, down further from 40% in February and 62% in January.
The manufacturing sector was in the sixth contracting 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.