PMI at 59.3%; March Manufacturing ISM Report On Business

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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. 

The report was issued today by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management (ISM) Manufacturing Business Survey Committee: "The March PMI registered 59.3%, a decrease of 1.5% points from the February reading of 60.8%. The New Orders Index registered 61.9%, a decrease of 2.3% points from the February reading of 64.2%. The Production Index registered 61%, a 1% point decrease compared to the February reading of 62%. The Employment Index registered 57.3%, a decrease of 2.4% points from the February reading of 59.7%. The Supplier Deliveries Index registered  60.6%, a 0.5% point decrease from the February reading of 61.1%. The Inventories Index registered 55.5%, a decrease of 1.2% points from the February reading of 56.7%. The Prices Index registered 78.1% in March, a 3.9% point increase from the February reading of 74.2%, indicating higher raw materials prices for the 25th consecutive month. Comments from the panel reflect continued expanding business strength. Demand remains robust, with the New Orders Index at 60 or above for the 11th straight month, and the Customers' Inventories Index at its lowest level since July 2011. 

The Backlog of Orders Index continued a 14 month expansion with its highest reading since May 2004, when it registered 63%. Consumption, described as production and employment, continues to expand, with indications that labor and skill shortages are affecting production output. Inputs, expressed as supplier deliveries, inventories and imports, were negatively impacted by weather conditions; Asian holidays; lead time extensions; steel and aluminum disruptions across many industries; supplier labor issues; and transportation difficulties due to driver and equipment shortages. Export orders remained strong, supported by a weaker U.S. currency. The Prices Index is at its highest level since April 2011, when it registered 82.6%. In March, price increases occurred across 17 of 18 industry sectors. Demand remains robust, but the nation's employment resources and supply chains are still struggling to keep up."

March 2018 Manufacturing Index Summaries

PMI

Manufacturing expanded in March as the PMI registered 59.3%, a decrease of 1.5% points from the February reading of 60.8%. "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," says Fiore. A reading above 50% indicates that the manufacturing economy is generally expanding; below 50% indicates that it is generally contracting.

A PMI above 43.2%, 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. "The past relationship between the PMI and the overall economy indicates that the PMI for March (59.3%) corresponds to a 4.9% increase in real gross domestic product (GDP) on an annualized basis."

New Orders

ISM's New Orders Index registered 61.9% in March, which is a decrease of 2.3% points when compared to the 64.2% 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% for the 11th straight month. Customer Inventories remain too low, and backlog expansion maintained high levels," says Fiore. A New Orders Index above 52.4%, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders (in constant 2000 dollars).

Production

ISM's Production Index registered 61% in March, which is a decrease of 1% point when compared to the 62% reported for February, indicating growth in production for the 19th consecutive month. "Production expansion continues, with the index at 10 straight months over 60%. 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," says Fiore. An index above 51.5%, over time, is generally consistent with an increase in the Federal Reserve Board's Industrial Production figures.

Employment

ISM's Employment Index registered 57.3% in March, a decrease of 2.4% points when compared to the February reading of 59.7%. 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," says Fiore. An Employment Index above 50.8%, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

Supplier Deliveries

The delivery performance of suppliers to manufacturing organizations was slower in March, as the Supplier Deliveries Index registered 60.6%. This is 0.5% point lower than the 61.1% reported for February. "This is the 18th straight month of slowing supplier deliveries, and that continues to be a constraint to production growth. Lead-time extensions in many areas, including steel; supplier labor shortages; and transportation delays will continue to restrict production output for the foreseeable future," says Fiore. A reading below 50% indicates faster deliveries, while a reading above 50% indicates slower deliveries.

Inventories 

The Inventories Index registered 55.5% in March, which is a decrease of 1.2% points when compared to the 56.7% 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%, over time, is generally consistent with expansion in the Bureau of Economic Analysis (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).

Customers' Inventories

ISM's Customers' Inventories Index registered 42% in March, which is 1.7% points lower than the 43.7% 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.

Prices

The ISM Prices Index registered 78.1% in March, an increase of 3.9% points from the February level of 74.2%, indicating an increase in raw materials prices for the 25th consecutive month. In March, 57.1% of respondents reported paying higher prices, 0.8% reported paying lower prices, and 42.1% 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%. "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%, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Producer Price Index for Intermediate Materials.

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