Economic activity in the manufacturing sector expanded in March, and the overall economy grew for the 107th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business.
Manufacturing expanded in March as the PMI registered 59.3 percent, a decrease of 1.5 percentage points from the February reading of 60.8 percent. This indicates strong growth in manufacturing for the 19th consecutive month, led by continued expansion in new orders, production activity, employment and inventories, with suppliers continuing to struggle delivering to demand. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.
Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management (ISM) Manufacturing Business Survey Committee states, “The past relationship between the PMI and the overall economy indicates that the PMI for March (59.3 percent) corresponds to a 4.9 percent increase in real gross domestic product (GDP) on an annualized basis.”
A PMI above 43.2 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the March PMI indicates growth for the 107th consecutive month in the overall economy and the 19th straight month of growth in the manufacturing sector.
Orders, Production and Inventory
ISM’s Customers’ Inventories Index registered 42 percent in March, which is 1.7 percentage points lower than the 43.7 percent reported for February, indicating that customers’ inventory levels were still considered too low in March.
“Customers’ inventory levels remain too low for the 18th consecutive month and are at their lowest level since July 2011, when the index registered 40.4. This month’s low level, coupled with continued strong expansion in backlogs, indicates strong demand will continue for the foreseeable future in spite of the slowing in new orders expansion,” says Fiore.
ISM’s New Orders Index registered 61.9 percent in March, which is a decrease of 2.3 percentage points when compared to the 64.2 percent reported for February, indicating growth in new orders for the 27th consecutive month.
“New orders expansion continues at a strong pace — slower compared to February’s reading, but still at or above 60 percent for the 11th straight month. Customer Inventories remain too low, and backlog expansion maintained high levels,” explains Fiore. A New Orders Index above 52.4 percent, over time, is generally consistent with an increase in the Census Bureau’s series on manufacturing orders (in constant 2000 dollars).
ISM’s Production Index registered 61 percent in March, which is a decrease of 1 percentage point when compared to the 62 percent reported for February, indicating growth in production for the 19th consecutive month.
“Production expansion continues, with the index at 10 straight months over 60 percent. Activity appears to be stabilizing at high rates as the spring/summer selling season approaches. However, labor constraints and supply chain disruptions will continue to prevent or limit maximum production potential,” addsFiore. An index above 51.5 percent, over time, is generally consistent with an increase in the Federal Reserve Board’s Industrial Production figures.
ISM’s Backlog of Orders Index registered 59.8 percent in March, which is the same as reported in February, indicating growth in order backlogs for the 14th consecutive month. Backlog expansion continued during the period, with the index at the same reading as February and the highest level since May 2004, when it registered 63 percent. Strong backlog, near-seven-year lows in customer inventory levels and continued strong new order expansion indicates that production requirements should remain robust through Q2.
The Inventories Index registered 55.5 percent in March, which is a decrease of 1.2 percentage points when compared to the 56.7 percent reported for February, indicating raw materials inventories grew in March.
“Suppliers were not able to maintain desired inventory expansion levels consistent with production demands. Broad supplier lead-time extensions and freight uncertainties will continue to impact inventory accounts,” says Fiore. An Inventories Index greater than 43 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).
Exports, Imports and Prices
ISM’s New Export Orders Index registered 58.7 percent in March, a decrease of 4.1 percentage points when compared to the 62.8 percent reported for February, indicating growth in new export orders for the 25th consecutive month. All six big industry sectors continued to expand export activity during the period. Exports remained strong, with many survey respondents commenting on the currency advantage.
ISM’s Imports Index registered 59.7 percent in March, a decrease of 0.8 percentage point when compared to the 60.5 percent reported for February, indicating that imports grew in March for the 14th consecutive month. “Imports continued to expand in order to support production demand, but at slightly slower expansion rates. Many comments reflected the negative impact of the Asian holiday period, concerns about tariffs and difficulties in moving containers from ports to using locations,” indicates Fiore.
The ISM Prices Index registered 78.1 percent in March, an increase of 3.9 percentage points from the February level of 74.2 percent, indicating an increase in raw materials prices for the 25th consecutive month. In March, 57.1 percent of respondents reported paying higher prices, 0.8 percent reported paying lower prices, and 42.1 percent of supply executives reported paying the same prices as in February. The Prices Index is at its highest level since April 2011, when it registered 82.6 percent.
“The increases in prices across industry sectors are inhibiting the panel from reporting all commodities up in price. Therefore, the commodities list doesn’t represent the total market activity because prices are changing every day. The Business Survey Committee noted price increases continue in metals (all steels, steel components, aluminum and copper), corrugate and parts made from plastics. Shortages continue in electronics,” says Fiore.
A Prices Index above 52.4 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Producer Price Index for Intermediate Materials.
ISM’s Employment Index registered 57.3 percent in March, a decrease of 2.4 percentage points when compared to the February reading of 59.7 percent. This indicates growth in employment in March for the 18th consecutive month.
“Employment expansion remains strong, with many companies struggling to hire skilled workers and indirect personnel to replace natural attrition, and to some extent, an increase in turnover. Many respondents see the labor market as a constraint to production,” explains Fiore.
An Employment Index above 50.8 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.
The monthly Manufacturing ISM Report on Business is based on the survey results of approximately 350 professionals across 18 different industry sectors. The report is released on the first business day of each month and features the PMI Index as its key measure. For more information on the Institute for Supply Management, visit www.ism.ws.