U.S. Manufacturing Contraction Deepens, ISM PMI Approaches Pandemic Levels in March

The March ISM Manufacturing Index decreased to 46.3% (consensus 47.5%) from 47.7% in February, the lowest reading since May 2020. The index contracted for the fifth straight month under 50%. Manufacturing activity at 46.3% the ISM corresponds to a change of -0.9% in real GDP on an annualized basis. The result was consistent with the regional Chicago PMI’s seventh consecutive month of contraction in business activity in the Chicago region. Clearly the cumulative effect of rate hikes around the globe is adversely impacting demand, evidenced by the six straight contraction in the new orders index, though it increased to 44.3% from 47.0%.

 March ISM Manufacturing Index Highlights

  • ISM Manufacturing PMI 46.3% (consensus 47.5%) from 47.7% in February.
  • The New Orders Index fell to 44.3% from 47.0%.
  • The Prices Index dropped to 49.2% from 51.3%.
  • The Backlog of Orders Index slipped to 43.9% from 45.1%.
  • The Supplier Deliveries Index declined to 44.8% from 45.2%.
  • The Production Index increased to 47.8% from 47.3%.
  • The New Export Orders Index decreased to 47.6% from 49.9%.
  • The Employment Index dropped to 46.9% from 49.1%.

PMI Survey Respondents Comments

  • “Orders and production are fairly flat month over month. 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.” [Computer & Electronic Products]
  • “Sales a bit down, and budgets being cut with a greater emphasis on savings.” [Chemical Products]
  • “Business is doing generally well, with input costs falling in some areas and rising in others.” [Food, Beverage & Tobacco Products]
  • “Sales are slowing at an increasing rate, which is allowing us to burn through back orders at a faster-than-expected pace.” [Transportation Equipment]
  • “Lead times are still improving, but prices continue to face inflationary pressures. Prices of steel and steel products are going up some. Hydraulic components are still facing extended lead times. We are increasing inventory levels of imports due to global uncertainty from the ongoing war in Ukraine and threats from China.” [Machinery]
  • “Overall, (our) first quarter is going better than planned, with sales increases of about 7 percent versus a budget of 4.5 percent. However, sales volume is pulling down our automotive original equipment manufacturer (OEM) side, which is the majority of our business. We believe the second quarter will be hard but are holding to our outlook.” [Fabricated Metal Products]
  • “Business is still slow overall. Customers have not yet picked up orders at pre-pandemic levels.” [Apparel, Leather & Allied Products]
  • “Overall, things feel more stable in the first quarter 2023 than they did throughout 2021-22. Customer demand is — as expected — growing well, and the overall supply environment is far better than the previous two years. This is not to say there are not challenges; there absolutely are. However, there are fewer issues cropping up each week, and supply challenges are generally more like the ‘typical’ issues we experienced before the pandemic. We are closely monitoring the global banking situation, but no impacts have been experienced or are expected at this time. Ongoing tensions between the U.S. and China are another issue to watch.” [Miscellaneous Manufacturing]
  • “New orders are starting to soften and supplier deliveries are improving slightly. This is allowing us to reduce (our) backlog and build a buffer in some categories. The supply chain disruption — particularly in electronics — is still significant compared to pre-pandemic conditions.” [Electrical Equipment, Appliances & Components]
  • “Overall, business continues to remain strong. We are still experiencing supply chain issues on several indirect supplies.” [Primary Metals]

Source ISM World

From The TradersCommunity News Desk