Economic activity in the manufacturing sector expanded in March for the fourth consecutive month, and the overall economy grew for the 46th straight month, according to a survey released in April by the Institute for Supply Management.
However, for many, growth slowed more than expected.
The ISM’s manufacturing purchasing managers’ index fell from 54.2 percent in February to 51.3 percent in March. Still, a reading above 50 indicates the manufacturing economy is generally expanding. Of the 18 manufacturing industries, 14 reported growth in March, the report says.
Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management™ Manufacturing Business Survey Committee, issued the monthly report. The report was compiled using results from a survey given to manufacturing executives and supply managers nationwide. Their responses generally reflected changes, if any, in the current month compared to the previous month.
“The past relationship between PMI and the overall economy indicates that the average PMI for January through March (52.9 percent) corresponds to a 3.3 percent in real gross domestic product (GDP) on an annualized basis, Holcomb said. “In addition, if the PMI for March is annualized, it corresponds to a 2.8 percent increase in real GDP annually.”
Respondents in the Furniture and Related Products industry echo much of the same, saying “business is continuing to be brisk.” Those in the Wood Product sectors echoed similar sentiments. “The market continues to be strong, and our production is exceeding plans at this time,” they say.
The Employment Index registered 54.2 percent in March, an increase of 1.6 percentage points compared to February’s 52.6 percent. The reading indicates growth in employment for the 42nd consecutive month. And the Employment Index above 50.5 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics data on manufacturing employment, according to the report.
New Exports Orders saw a 2.5 percentage increase from February, and the Imports Index saw no change in March, at 54 percent.
But the news, while good, can be better, says many of those in several other sectors.
GROWTH SLOWER THAN EXPECTED FOR MANY
While economic activity in manufacturing continues to grow, many sectors saw that growth slowed moderately or considerably in March. For starters, the PMI rating is the lowest it has been since December, when it was 50.2 percent. It was 53.1 percent in January and 54.2 in February.
The New Orders and Production Indexes decreased from 57.8 percent and 57.6 percent in February to 51.4 percent and 52.2 percent in March, respectively. For New Orders, an index above 52.2 percent, over time, is generally consistent with an increase in the Census Bureau’s series on manufacturing orders. An index above 51.2 percent, overtime, is generally consistent with an increase in the Federal Reserve Board’s Industrial Production figures.
The Prices Index decreased seven percentage points to 54.5, and the list of commodities up in price reflected far fewer items than in February. The inventories index fell to 49.5 from 51.5, and customers’ inventories registered 47.5 percent in March, a single percentage point higher than in February. The reading means customers’ inventories are considered too low, but slightly better than reported the previous month. Customers’ inventories have registered at or below 50 percent for 48 months in a row. A reading below 50 percent indicates customers’ inventories are considered too low.
Backlog of Orders registered 51 percent in March, lower than the 55 percent in February.
The ISM report shows cost pressures among manufacturers eased last month but from a high level. The prices paid index stood at 54.5 percent in March after it jumped to 61.5 in February. It was 56.5 percent in January and 5.5 percent in December.
Sectors negatively affected in March, at least in comparison to February, expressed apprehension about what the remaining first half of 2013 may bring.
According to the report, those in the Food, Beverage and Tobacco products industry says that while they’re “beginning to feel the seasonal upswing in business, energy and resin remain a concern.”
Managers in miscellaneous manufacturing, the report said, replied that “medical reimbursements from insurance companies, particularly Medicare, are slowing.” And leaders in computer and electronic products expressed similar worries, saying, “While the second half of 2013 looks promising, the first half is a mixed bag.”
That was a common theme for other sectors, including those in printing and related support activities, who say, “Things seem slightly better than last year, but are still not great.”
Fabricated metal products executives say “automotive is still very young,” and petroleum and coal products leaders suggest “companies within the oil and gas sector are still waiting for signs of some regulatory certainty or stability” following last November’s election.
Others flat-out had more concerns than faith for the remainder of the year.
“Reduced government spending in the defense sector lowers business output,” transportation equipment leaders were quoted as saying, according to the report. Mangers in furniture and related products say “business is continuing to be brisk” while those in charge of chemical products say “sales are low, even adjusted for season variation.”
The full text version of the Manufacturing ISM Report On Business® is posted on ISM’s website at www.ism.ws on the first business day of every month after 10:10 a.m. EST.