Economic activity in the manufacturing sector expanded in March after contracting for 16 consecutive months, according to the latest Manufacturing Report on Business from the Institute for Supply Management. The report was issued by Timothy R. Fiore, chair of the ISM’s manufacturing business survey committee.
“The Manufacturing PMI registered 50.3% in March, up 2.5 percentage points from the 47.8% recorded in February.* The overall economy continued in expansion for the 47th month after one month of contraction in April 2020.” Fiore said. “The New Orders Index moved back into expansion territory at 51.4%, 2.2 percentage points higher than the 49.2% recorded in February. The March reading of the Production Index (54.6%) is 6.2 percentage points higher than February’s figure of 48.4%. The Prices Index registered 55.8%, up 3.3 percentage points compared to the reading of 52.5% in February. The Backlog of Orders Index registered 46.3%, the same reading as in February. The Employment Index registered 47.4%, up 1.5 percentage points from February’s figure of 45.9%.”
*A Manufacturing PMI above 42.5%, over a period of time, generally indicates an expansion of the overall economy.
“The Supplier Deliveries Index figure of 49.9% is 0.2 percentage point lower than the 50.1% recorded in February.* The Inventories Index increased 2.9 percentage points to 48.2% following a reading of 45.3% in February,” Fiore said. “The New Export Orders Index reading of 51.6% is the same reading as registered in February. The Imports Index continued in expansion territory, registering 53%, the same figure as in February. Both indexes repeated their highest readings since July 2022, when the New Export Orders Index registered 52.6% and the Imports Index registered 54.4%.”
*Supplier Deliveries is the only ISM Report On Business index that is inversed; a reading of above 50% indicates slower deliveries, which is typical as the economy improves and customer demand increases.
“The U.S. manufacturing sector moved into expansion for the first time since September 2022. Demand was positive, output strengthened and inputs remained accommodative. Demand improvement was reflected by the (1) New Orders Index back in expansion and fewer comments regarding ‘softening,’ (2) New Export Orders Index expanding again, supported by panelists’ stronger optimism (3) Backlog of Orders Index remaining in moderate contraction territory, the same as in February and (4) Customers’ Inventories Index contracting for the fourth consecutive month, remaining at a level accommodative for future production,” Fiore said. “Output (measured by the Production and Employment indexes) surged, with a combined 7.7-percentage point upward impact on the Manufacturing PMI calculation. Panelists’ companies notably increased their production levels month over month. Head-count reductions continued in March, with sizable layoff activity reported. Inputs — defined as supplier deliveries, inventories, prices and imports — continued to accommodate future demand growth and showed signs of stiffening. The Supplier Deliveries Index dropped marginally, moving into ‘faster’ territory, and the Inventories Index improved but remained in slight contraction territory. The Prices Index moved further upward in moderate expansion (or ‘increasing’) territory as commodity driven costs remain unstable.”
“Of the six biggest manufacturing industries, four — food, beverage and tobacco products; fabricated metal products; chemical products; and transportation equipment, which account for a combined 54% of manufacturing gross domestic product (GDP) — registered growth in March,” Fiore said. “Demand remains at the early stages of recovery, with clear signs of improving conditions. Production execution surged compared to January and February, as panelists’ companies reenter expansion. Suppliers continue to have capacity but are showing signs of struggling, due in large part to their raw material supply chains. 30% of manufacturing GDP contracted in March, down from 40% in February. More importantly, the share of sector GDP registering a composite PMI calculation at or below 45% — a good barometer of overall manufacturing weakness — was 1% in March, the same as in February, but categorically healthier than the 27% recorded in January. Among the top six industries by contribution to manufacturing GDP in March, none had a PMI at or below 45%.”
The nine manufacturing industries reporting growth in March — in order — are:
The six industries reporting contraction in March — in the following order — are:
WHAT RESPONDENTS ARE SAYING
COMMODITIES REPORTED UP/DOWN IN PRICE AND IN SHORT SUPPLY
Commodities Up in Price
Aluminum* (4); Corrugated Boxes; Corrugated Sheets; Crude Oil; Gasoline; Hydraulic Components; Maintenance, Repair, and Operations (MRO) Supplies (2); Ocean Freight (3); Plastic Resins (3); Polyethylene Resins; Polypropylene (6); Solvents; and Steel* (9).
Commodities Down in Price
Aluminum* (10); Copper; Natural Gas (4); Packaging Materials (4); Road Freight; Steel* (2); Steel — Hot Rolled (5); Steel — Scrap; and Steel Products (2).
Commodities in Short Supply
Electrical Components (42); Electrical Equipment (2); Hydraulic Components; Plastic Resins; and Semiconductors.
Note: The number of consecutive months the commodity is listed is indicated after each item.
*Indicates both up and down in price.
MARCH 2024 MANUFACTURING INDEX SUMMARIES
Manufacturing PMI
The U.S. manufacturing sector expanded in March, as the Manufacturing PMI registered 50.3%, up 2.5 percentage points compared to February’s reading of 47.8%. “This is first instance of expansion in 17 months,” Fiore said. “Two out of five subindexes that directly factor into the Manufacturing PMI are in expansion territory, up from one in February. The New Orders Index moved into expansion territory after one month of contraction. Of the six biggest manufacturing industries, four (food, beverage and tobacco products; fabricated metal products; chemical products; and transportation equipment) registered growth in March.” A reading above 50% indicates that the manufacturing sector is generally expanding; below 50% indicates that it is generally contracting.
A Manufacturing PMI above 42.5%, over a period of time, generally indicates an expansion of the overall economy. Therefore, the March Manufacturing PMI indicates the overall economy grew for the 47th straight month after one month of contraction (April 2020). “The past relationship between the Manufacturing PMI and the overall economy indicates that the March reading (50.3%) corresponds to a change of plus-2.2% in real gross domestic product (GDP) on an annualized basis,” Fiore said.
New Orders
ISM’s New Orders Index expanded for just the third time in 22 months in March, registering 51.4%, an increase of 2.2 percentage points compared to February’s reading of 49.2%. The New Orders Index hasn’t indicated consistent growth since a 24-month streak of expansion ended in May 2022. “Of the six largest manufacturing sectors, four (computer and electronic products; fabricated metal products; food, beverage and tobacco Products; and chemical products) reported increased new orders,” Fiore said. “Panelists’ comments reflected continuing improvement in demand, a trend that began in December 2023.” A New Orders Index above 52.3%, over time, is generally consistent with an increase in the Census Bureau’s series on manufacturing orders (in constant $2,000).
The 12 manufacturing industries that reported growth in new orders in March — in the following order — are:
The two industries reporting a decline in new orders in March are: furniture and related products; and transportation equipment.
Production
The Production Index surged back into expansion territory in March, registering 54.6%, 6.2 percentage points higher than the February reading of 48.4%. The Production Index had been in contraction for 11 of the previous 15 months. Of the six largest manufacturing sectors, five (chemical products; fabricated metal products; food, beverage and tobacco products; transportation equipment; and computer and electronic products) reported increased production. “Panelists’ companies improved output levels compared to February. The index posted its highest reading since June 2022, when it registered 54.7%,” Fiore said. An index above 52.2%, over time, is generally consistent with an increase in the Federal Reserve Board’s Industrial Production figures.
The 13 industries reporting growth in production during the month of March, in order, are:
The two industries reporting a decrease in production in March are: furniture and related products; and machinery.
Employment
ISM’s Employment Index registered 47.4% in March, 1.5 percentage points higher than the February reading of 45.9%. “The index indicated employment contracted for the sixth month in a row (but at a slower rate in March) after one month of expansion and three months of contraction before that. Of the six big manufacturing sectors, three (transportation equipment; machinery; and food, beverage and tobacco products) expanded employment in March,” Fiore said. “Many Business Survey Committee respondents’ companies are continuing to reduce head counts through layoffs (which account for 76% of reduction activity, up from 50% in February), attrition and hiring freezes. Panelists’ comments in March were again equally split between companies adding and reducing head counts. This approximately 1-to-1 ratio has been consistent since October 2023.” An Employment Index above 50.3%, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.
Of 18 manufacturing industries, seven reported employment growth in March in the following order:
The eight industries reporting a decrease in employment in March, in the following order, are:
Supplier Deliveries†
Delivery performance of suppliers to manufacturing organizations was marginally faster in March after one month of slowing preceded by 16 straight months in “faster” territory. The Supplier Deliveries Index, which registered 49.9%, was 0.2 percentage point lower than the 50.1% reported in February. After a reading of 52.4% in September 2022, the index went into contraction territory in October and had been there until January. “Panelists’ comments continue to indicate that supplier performance is improving; delivery promises are more stable as inputs transition to a more demand-driven environment. For the third month, supplier responsiveness appears to be ‘stiffer,’ meaning some suppliers are struggling to keep up,” Fiore said. A reading below 50% indicates faster deliveries, while a reading above 50% indicates slower deliveries.
The four manufacturing industries reporting slower supplier deliveries in March are: textile mills; food, beverage and tobacco products; chemical products; and transportation equipment. The five industries reporting faster supplier deliveries in March are: electrical equipment, appliances and components; machinery; miscellaneous manufacturing; computer and electronic products; and primary metals. Nine industries reported no change in delivery performance in March compared to February.
Inventories
The Inventories Index registered 48.2% in March, 2.9 percentage points higher than the 45.3% reported in February. “Manufacturing inventories contracted at a slower rate compared to the previous month. Of the six big industries, three (fabricated metal products; chemical products; and food, beverage and tobacco products) increased manufacturing inventories in March,” Fiore said. “Panelists’ companies continue to indicate a willingness to invest in manufacturing inventory to improve on-time deliveries, gain precision in revenue projections and improve customer service.” An Inventories Index greater than 44.4%, over time, is generally consistent with expansion in the Bureau of Economic Analysis (BEA) figures on overall manufacturing inventories (in chained $2,000).
Of 18 manufacturing industries, nine reported higher inventories in March, in the following order:
The eight industries reporting lower inventories in March — in the following order — are:
Customers’ Inventories†
ISM’s Customers’ Inventories Index registered 44% in March, down 1.8 percentage points compared to the 45.8% reported in February. “Customers’ inventory levels decreased at a faster rate in March, with the index retreating a bit more into ‘too low’ territory,” Fiore said. “Panelists report their companies’ customers continue to have a shortage of their products in inventory, which is considered positive for future new orders and production.”
The two industries reporting customers’ inventories as too high in March are: apparel, leather and allied products; and electrical equipment, appliances and components. The nine industries reporting customers’ inventories as too low in March, in order, are:
Seven industries reported no change in customers’ inventories in March compared to February.
Prices†
The ISM Prices Index registered 55.8%, 3.3 percentage points higher compared to the February reading of 52.5%, indicating raw materials prices increased in March for the third month in a row after eight consecutive months of decreases. Of the six largest manufacturing industries, four — chemical products; food, beverage and tobacco products; computer and electronic products; and machinery — reported price increases in March. “The Prices Index indicated moderate expansion in March, recording its highest level since July 2022 (60%),” Fiore said. “Commodity prices continue to be volatile, especially crude oil, aluminum and plastics. 24% of companies reported higher prices, compared to 18% in February.” A Prices Index above 52.8%, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Producer Price Index for Intermediate Materials.
In March, the 11 industries that reported paying increased prices for raw materials, in order, are:
The four industries reporting paying decreased prices for raw materials in March are: furniture and related products; primary metals; transportation equipment; and fabricated metal products.
Backlog of Orders†
ISM’s Backlog of Orders Index registered 46.3%, the same figure as in February, indicating order backlogs contracted for the 18th consecutive month after a 27-month period of expansion. Of the six largest manufacturing industries, the only one reporting expanded order backlogs in March was computer and electronic products, which was due in part to generally long lead times. “The index remained in contraction in March, as production rates and new order levels continue to not be conducive to expansion in backlogs,” Fiore said.
Of 18 manufacturing industries, the three that reported growth in order backlogs in March are: wood products; primary metals; and computer and electronic products. The 12 industries reporting lower backlogs in March — in the following order — are:
New Export Orders†
ISM’s New Export Orders Index registered 51.6% in March, matching February’s reading and repeating the index’s highest figure since July 2022 (52.6%). “The New Export Orders Index reading indicates that export orders expanded in March for a second straight month after eight consecutive months of contraction. Panelists’ comments supported the continued improvement in demand from overseas customers,” Fiore said.
The eight industries reporting growth in new export orders in March — in the following order — are:
The four industries reporting a decrease in new export orders in March are:
Imports†
ISM’s Imports Index registered 53% in March, the same figure as in February, which keeps it at its highest level since a reading of 54.4% in July 2022. “Imports grew for the third consecutive month in March after contracting for 14 consecutive months,” Fiore said. “The month-over-month increases in import activity have been due to Lunar New Year pre-shipments and companies’ desire to increase on-hand inventories. Ocean freight costs continue to rise as a result of trans-Suez disruptions.”
The seven industries reporting an increase in import volumes in March — listed in the following order — are:
The two industries that reported lower volumes of imports in March are: furniture and related products; and electrical equipment, appliances and components. Nine industries reported no change in imports in March compared to February.
†The Supplier Deliveries, Customers’ Inventories, Prices, Backlog of Orders, New Export Orders and Imports indexes do not meet the accepted criteria for seasonal adjustments.
Buying Policy
The average commitment lead time for capital expenditures in March was 176 days, a decrease of one day compared to February. Average lead time in March for production materials was 78 days, a decrease of two days. Average lead time for maintenance, repair and operating supplies was 44 days, an increase of one day compared to February.
Like this story? Begin each business day with news you need to know! Click here to register now for our FREE Daily E-News Broadcast and start YOUR day informed!
Terry Mulreany
Subscriptions: 800 708 9373 x130
[email protected]
Susie Angelucci
Advertising: 484.459.3016
[email protected]
Visit our sister website for news, information, exclusive articles,
deal tables and more on the asset-based lending, factoring,
and restructuring industries.
www.abfjournal.com
