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First Cut: ISM Manufacturing Index better than expected in March, but trajectory is downward

The ISM Manufacturing Index dipped below the 50-mark to 49.1 in March, but was better than markets had expected against the backdrop of the spread of COVID-19 in the US and lingering impacts along the supply chain from China. However, the reading was a return to contraction after two months of narrow expansion and the outlook is not upbeat. The report noted, “The PMI® returned to contraction territory, and with a negative trajectory.” Whatever relief might be found in the March data, it will be lost behind anticipation of a ugly monthly report in April.

Among the components, the index for production was down to 47.7 in March after 50.3 in February. Delivery times widened substantially to 65.0 after 57.3 as shortages made it more difficult to get materials. Inventories continued to contract, although the pace was not much changed at 46.9 in March from 46.5 in the prior month. The employment index fell to 43.8 in March after 46.9 in February. Manufacturing  employment did not register an expansion for an eighth month in a row and the index was the lowest since mid-2009. The index for new orders was down to 42.2 in March from 49.8 in February and the lowest since 40.3 in March 2009.

Not among the components for the headline index, order backlogs resumed contraction at 45.9 in March after briefly expanding at 50.3 in January, but basically have been falling for the past 11 months. Export orders dropped to 46.6 after 51.2 on the wider slowdown in the global economy where the impacts of the pandemic were felt earlier than in the US. The import index was little changed at 42.1 after 42.6 and continued to reflect a low volume of goods coming into the US that began with trade disputes and intensified again with the pandemic after a resolution of sorts was reached in December 2019 with the letter of agreement on trade with China.

The index for prices paid fell again in March to 37.4 after 45.9 in the prior month. Prices are following the rapid decline in energy costs.

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