U.S. Manufacturing Regains Lost Ground in March

A gauge of U.S. factory activity topped estimates in March, rebounding from a two-year low on strength in employment, new orders and manufacturing production. The Institute for Supply Management’s PMI reached 55.3 percent in March, a 1.1 percent increase from the prior month.

Any number above 50 indicates manufacturing expansion. March made up for ground lost in February as new orders rose 1.9 percent to 57.4 and production registered 55.8 percent, a 1-percentage point increase from the prior month. Employment increased by 5.2 percent to 57.5—the highest level in four months.

Overall, demand for U.S.-manufactured goods remains strong, said Tim Fiore, chair of the ISM’s manufacturing business survey committee. That said, there were a few sub-indexes to the PMI that could have performed better.

Supplier deliveries registered 54.2 percent, a 0.7 percentage point decrease from February. The inventories index registered 51.8 percent, a decrease of 1.6 percentage points from the prior month. The prices index registered 54.3 percent, a 4.9-percentage point increase from the February reading of 49.4 percent.

Source: Institute for Supply Management. Manufacturing ISM Report On Business data is seasonally adjusted for the New Orders, Production, Employment and Supplier Deliveries Indexes. *Number of months moving in current direction.

“Customer inventory levels are still pretty low at 42.7 percent,” Fiore explained. “I’d feel better if that had grown. Backlog is at 50; I’d feel better if it were 53 or 54.”

Nearly all the 18 industries the ISM tracks expanded in March. “The electronics industry seems to be slowly coming out of crisis mode,” an electronics executive told the ISM. “Lead times and costs have leveled out in some commodities, and dynamic random-access memory (DRAM) prices are actually coming down.”

However, some end-markets are still feeling the squeeze from limited electronic component availability. “Business remains very strong amid rumors of a slowdown, but forecasts do not indicate this,” a transportation equipment executive said. “Electronics are at tight capacity from manufacturers, with no [change] in the near future.”

The dynamic between industry inputs and consumption indicates a more balanced picture overall, Fiore said. Inputs—as measured by supplier deliveries, inventories and imports — were lower this month, primarily due to inventory consumption exceeding inputs. The result was a combined 2.3-point decline in supplier deliveries and inventories that contributed negatively to the PMI.

Consumption, as measured by production and employment, continued to expand and regained its footing with a combined 6.2-percentage point gain from the previous month’s levels, recovering most of February’s loss.

“The input side was strong,” said Fiore. “Suppliers were delivering faster and factories were ramping up to meet production demands. But inventory did not grow, which indicates production exceeded the supply chain's ability to increase inventory. Prices reversed a two-month contraction, so that worked out pretty well.”

Overall, inputs continue to reflect an easing business environment, but to a lesser extent than in February, confirmed by the prices index returning to expansion.

What remains a concern, said Fiore, is the nation’s import and export activity. In March, exports fell to their lowest level since 2015. “That’s not positive for the future,” he said. Import expansion declined in March to near-zero levels.

Overall, feedback from industry leaders was positive for March. Tariff-related comments have declined from nearly 40 percent to less than 20 percent last month. Most manufacturers, Fiore said, believe tariffs will eventually go away. “Please stop this lunacy was the general feeling,” he said.

The PMI will likely bump up and down a few percentage points for the next few months before stabilizing, Fiore concluded. “There’s a lot of confusion in the markets, but the PMI is saying that we’re still expanding. We’re not expanding at the same levels as we were in 2018, but we’re expanding at reasonable levels.”