Manufacturing Sector Economic Activity Contracted in March



Economic activity in the manufacturing sector contracted in March and the overall economy grew for the 131st consecutive month, said the nation’s supply executives in the latest Manufacturing ISM Report on Business.

Timothy R. Fiore, CPSM, C.P.M., chair of the Institute for Supply Management Manufacturing Business Survey Committee, said, “The coronavirus pandemic and shocks in global energy markets have impacted all manufacturing sectors. Among the six big industry sectors, food, beverage & tobacco products remains strongest, followed by chemical products, which in addition to the pharmaceutical component, is a significant contributor to the food, beverage & tobacco products industry and beneficiary of low energy and feedstock prices. Transportation equipment and petroleum & coal products are the weakest sectors. Sentiment regarding near-term growth this month is strongly negative, by a 2-to-1 ratio,” said Fiore.

The March PMI  registered 49.1%, down 1 percentage point from the February reading of 50.1%. The New Orders Index registered 42.2%, a decrease of 7.6 percentage points from the February reading of 49.,8%. The Production Index registered 47.7%, down 2.6 percentage points compared to the February reading of 50.3%. The Backlog of Orders Index registered 45.9%, a decrease of 4.4 percentage points compared to the February reading of 50.3%. The Employment Index registered 43.8%, a decrease of 3.1 percentage points from the February reading of 46.9%.

Of the 18 manufacturing industries, the 10 that reported growth in March listed in order were Printing & Related Support Activities; Food, Beverage & Tobacco Products; Apparel, Leather & Allied Products; Wood Products; Paper Products; Chemical Products; Computer & Electronic Products; Primary Metals; Miscellaneous Manufacturing; and Plastics & Rubber Products.

The six industries reporting contraction in March, in order, were Petroleum & Coal Products; Textile Mills; Transportation Equipment; Furniture & Related Products; Fabricated Metal Products; and Machinery

Comments from the panel were negative regarding the near-term outlook, with sentiment clearly impacted by the coronavirus (COVID-19) pandemic and energy market volatility. The PMI returned to contraction territory and with a negative trajectory. Demand slumped, with (1) the New Orders Index contracting at a strong level, in part pushed by new export order contraction, (2) the Customers’ Inventories Index remaining at ‘too low’ status, but increasing at a level considered a negative for future production, (3) the Backlog of Orders Index contracting again, at a moderate rate. Consumption (measured by the Production and Employment indexes) contributed negatively (a combined 5.7 percentage point decrease) to the PMI calculation, with activity contracting at a faster rate. Inputs, expressed as supplier deliveries, inventories and imports, strengthened in March, due primarily to supplier delivery difficulties; inventory contraction stabilized. Despite imports contracting at strong rates due primarily to coronavirus impacts, inputs contributed positively to the PMI calculation (the Imports Index does not directly factor into the PMI). Prices continued to contract (and at a faster rate in March), supporting a negative outlook.


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