The Institute for Supply Management recently just released the Manufacturing ISM Report on Business for the month of March 2019. The report tracks the manufacturing industry’s monthly performance according to the following indicators: New Orders, Backlog of Orders, New Export Orders, Imports, Production, Supplier Deliveries, Inventories, Customers’ Inventories, Employment and Prices. Data is collected through a survey by the Manufacturing Business Survey Committee for purchasing and supply organizations nationwide. The committee is responsible for distributing and compiling the results from the survey.
Of the 18 industries included in the survey, 16 reported significant growth in March. According to most sectors, demand remains strong amidst capacity concerns. January and February saw strong momentum for business. However, tariffs and international politics continue to challenge and delay operations.
A PMI level above 50 signals that the manufacturing industry is expanding, while levels below indicates that it’s contracting. The March PMI indicates growth for the 119th consecutive month in the overall economy. It also marks the 31st month of growth in the manufacturing sector.
March’s overall manufacturing index came out at 55.3 percent. This is 1.1 percent higher compared to February’s 54.2 percent. “This indicates growth in manufacturing for the 31st consecutive month. The PMI reversed a February expansion decline primarily through improved growth in employment and, to a lesser extent, new orders,” says Timothy R. Fiore, Chair of the Institute for Supply Management (ISM) Manufacturing Business Survey Committee.
The report for March showed both significant improvement and decline, which reflected on the economy’s performance, particularly in the following:
Manufacturing Employment Index
The Employment Index registered at 57.5 percent. This is 5.2 percentage points higher compared to February’s readings of 52.3 percent. An Employment Index of 50.8 percent and above is typically consistent with increases in the Bureau of Labor Statistics (BLS) data on manufacturing employment. This is the 30th consecutive month that employment has shown growth.
“Employment continued to expand, improving on February’s performance and achieving its highest expansion level since November 2018, when the index registered 57.7 percent,” says Fiore.
Of the 18 industries, 13 reported employment growth for March.
Prices Index
The Prices Index registered at 54.3 percent. This is 4.9 percent higher than the previous month’s reading of 49.4 percent. This is due to the increase in raw materials prices after a two-month respite. A Prices Index above 52.5 percent is typically consistent with increases in the Bureau of Labor Statistics (BLS) Producer Price Index for Intermediate Materials.
“Prices increased in March, rebounding to a marginally strong level, primarily due to fewer respondents reporting price declines. This represents more stability in the markets. Increases were reported in aluminum, copper, oil, and steel, including steel scrap. Steel prices remain at more normal levels. Shortages continue for passive electronic components and labor,” says Fiore.
Of the 18 industries, seven reported paying increased prices for raw materials in March. On the other hand, six industries reported no change in prices for the month.
Inputs (Supplier Deliveries, Inventories, and Imports)
Inputs were lower this March due to inventory consumption exceeding inputs. This encompasses supplier deliveries, inventories and imports. This resulted in a combined 2.3 percent decrease in the Supplier Deliveries and Inventories indexes, which negatively impacted the overall PMI.
Suppliers’ delivery performance slowed in March with the Supplier Deliveries Index at 54.2 percent. This is 0.7 percent lower compared to February’s 54.9 percent.
“This is the 37th straight month of slowing supplier deliveries, with the index recording its lowest level of expansion since January 2017, when it registered 53.9 percent. Supplier delivery improvement was unable to maintain acceptable inventory expansion,” says Fiore. A reading below 50 percent indicates faster deliveries, while a reading above 50 percent indicates slower deliveries.
“Inventories expanded for the 15th consecutive month, but at a slower rate than the previous month. Inventory expansion declined due to increased production output and despite supplier delivery improvements,” says Fiore.
However, inputs still continue to reflect an easing business environment overall but to a lesser extent than in February. This is confirmed by the Prices Index returning to expansion.
“Exports orders continue to expand, but at marginal levels. Prices reversed two months of contraction by returning to a robust mid-50s level. The manufacturing sector continues to expand, demonstrated by improvements in the PMI three-month rolling average, which is consistent with overall manufacturing growth projections,” says Fiore.
Overall, the report shows expanding economic activity for the manufacturing sector in March. This marks the 119th consecutive month that the economy grew according to the country’s supply executives.
To see the full report, check out the Institute for Supply Management’s website here.