ISM: Manufacturing activity expanded rather strongly in March despite a slight easing

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The Institute for Supply Management’s (ISM) Manufacturing PMI expanded rather strongly in March despite a slight easing in the pace from February’s 2½-year high reading. The composite index declined from 57.7 in February, its fastest rate since August 2014, to 57.2 in March. More importantly, it was the seventh straight monthly expansion in the headline number, recognizing definite progress after two years of notable challenges in the sector. Indeed, the sample comments tended to echo improvements in manufacturing activity, citing the better economic conditions and robust sales. This finding also mirrors the most recent NAM Manufacturers’ Outlook Survey, which found confidence rising to its highest point in the survey’s nearly 20-year history.

Digging into the underlying data in the ISM report, new orders (down from 65.1 to 64.5) continued to expand at a vigorous pace, with that measure now exceeding 60 for the fourth consecutive month. Hiring (up from 54.2 to 58.9) and exports (up from 55.0 to 59.0) were also significant strengths in this release.  The employment index was at levels not seen since June 2011, with exports at its highest points since November 2013. Both had been notable laggards of late, making the strong figures in the March survey even more encouraging. In addition, growth in production (down from 62.9 to 57.6) remained decent even with some deceleration in March.

There were two other highlights worth mentioning. First, pricing pressures (up from 68.0 to 70.5) continued to accelerate, with manufactures paying more for raw materials as the economy has strengthened. The index for prices was at its fastest rate since May 2011. Meanwhile, after shifting away from contraction for the first time since June 2015 in February, inventories (down from 51.5 to 49.0) returned to negative territory in March. Of course, there continues to be a silver lining to reduced stockpiles over the past couple years: the recent pickup in demand should necessitate strong growth in production moving forward.

Chad Moutray

Chief Economist at National Association of Manufacturers