March data highlighted sustained growth across the U.S. manufacturing sector, but the overall pace of expansion remained subdued. At 51.5, up only slightly from 51.3 in February, the seasonally adjusted final Markit U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) signalled another modest improvement in operating conditions. The earlier ‘flash’ reading for March was 51.4.
Moreover, looking at the average reading for Q1 as a whole (51.7), the headline PMI pointed to the weakest quarterly upturn since Q3 2012.
A faster increase in incoming new work and sustained growth of employment numbers were the main positive developments recorded by the survey during March. Latest data also pointed to stabilization in new export orders, following a slight fall in February. Manufacturers noted that generally improving global economic conditions had helped to offset some of the negative influence on export sales from the strong dollar.
Despite a slightly sharper rise in new work, manufacturing output growth was unchanged from the 28-month low recorded during February. Moreover, output growth remained below its post-crisis trend and close to its lowest since late-2012. A relatively weak rise in production volumes was linked to subdued client spending patterns so far this year and a corresponding lack of pressuring on operating capacity. Reflecting this, backlogs of work were reported to have fallen again in March, which extended the current period of decline to four out of the past five months.
Manufacturing companies indicated cautious inventory policies in March. Post-production stocks were broadly unchanged, as has been the case throughout 2016 to date. Stocks of inputs were reduced for the fourth month running and the rate of decline was the fastest since January 2014. Survey respondents linked this fall to relatively subdued output growth and heightened uncertainty about the business outlook. At the same time, growth of input buying was only marginal, following a reduction in February.
The latest survey highlighted a sustained decrease in average cost burdens across the manufacturing sector. Lower input prices have now been recorded for seven months running, although the latest decline was only marginal. Where a drop in input costs was reported, manufacturers mainly cited the impact of lower commodity prices.
Manufacturers reported a further reduction in their factory gate charges during March, but the rate of decline moderated since February. Survey respondents attributed the latest fall to competitive pricing strategies and lower input costs.
The ISM is more upbeat, especially on new orders:
The March PMI® registered 51.8 percent, an increase of 2.3 percentage points from the February reading of 49.5 percent. The New Orders Index registered 58.3 percent, an increase of 6.8 percentage points from the February reading of 51.5 percent. The Production Index registered 55.3 percent, 2.5 percentage points higher than the February reading of 52.8 percent. The Employment Index registered 48.1 percent, 0.4 percentage point below the February reading of 48.5 percent. (chart from Doug Short)
Inventories of raw materials registered 47 percent, an increase of 2 percentage points above the February reading of 45 percent. The Prices Index registered 51.5 percent, an increase of 13 percentage points above the February reading of 38.5 percent, indicating higher raw materials prices for the first time since October 2014. Manufacturing registered growth in March for the first time since August 2015, as 12 of our 18 industries reported sector growth, and 13 of our 18 industries reported an increase in new orders in March.
ISM®’s New Orders Index registered 58.3 percent in March, which is an increase of 6.8 percentage points when compared to the 51.5 percent reported for February, indicating growth in new orders for the third consecutive month. A New Orders Index above 52.2 percent, over time, is generally consistent with an increase in the Census Bureau’s series on manufacturing orders (in constant 2000 dollars).
New Export Orders*
ISM®’s New Export Orders Index registered 52 percent in March, which is an increase of 5.5 percentage points when compared to the February reading of 46.5 percent. This month’s reading indicates growth in new export orders and is the highest reading since December 2014 when the New Export Orders Index also registered 52 percent.