US: ISM Manufacturing PMI falls to 57.1 in March

The headline ISM Manufacturing Purchasing Manager’s Index (PMI) figure fell to 57.1 in March from 58.6 in February, a miss against expectations for a small rise to 59.0, according to the latest release by the Institute for Supply Management (ISM).

There was a sharp rise in the Price Paid subindex to 87.1 from 75.6 in February, which was larger than the expected reading of 80.0. The Employment index rose to 56.3 from 52.9 in February, in fitting with the recently released strong official labour market data, while the New Orders index fell sharply to 53.8 from 61.7 in February.

Financial markets hardly budged in reaction to the data which, most notably, showed a surge in inflationary pressures in the manufacturing sector last month.

Economic activity in the manufacturing sector grew in March, with the overall economy achieving a 22nd consecutive month of growth, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business.

The U.S. manufacturing sector remains in a demand-driven, supply chain-constrained environment. In March, progress was made to solve the labor shortage problems at all tiers of the supply chain, which will result in improved factory throughput and supplier deliveries. Panelists reported lower rates of quits and early retirements compared to previous months, as well as improving internal and supplier labor positions.

March brought back increasing rates of price expansion, due primarily to instability in global energy markets. Suppliers are not waiting to experience the full impacts of price increases before negotiating with their customers. Panel sentiment remained strongly optimistic regarding demand, with six positive growth comments for every cautious comment, down from February’s ratio of 12-to-1.

Demand expanded, with the (1) New Orders Index remaining in growth territory, supported by weaker growth of new export orders, (2) Customers’ Inventories Index remaining at a very low level and (3) Backlog of Orders Index continuing in strong growth territory. Consumption (measured by the Production and Employment indexes) grew during the period, though at a slower rate, with a combined minus-0.6-percentage point change to the Manufacturing PMI® calculation.

The Employment Index expanded for a seventh straight month; panelists indicate their ability to hire continues to improve, to a greater degree than in February. Challenges with turnover (quits and retirements) and resulting backfilling continue to plague panelists’ efforts to adequately staff their organizations, but to a lesser extent compared to February.

Amid signs of staffing and supplier delivery improvements, production expanded at disappointing levels, likely due to timing issues. Inputs — expressed as supplier deliveries, inventories, and imports — continued to constrain production expansion. The Supplier Deliveries Index again slowed, but at a slightly slower rate in March, while the Inventories Index increased at a slightly faster rate and the Imports Index grew at a slower rate. The Prices Index increased for the 22nd consecutive month, at a dramatically higher rate compared to February.

Five of the six biggest manufacturing industries — Food, Beverage & Tobacco Products; Machinery; Transportation Equipment; Chemical Products; and Computer & Electronic Products — registered moderate-to-strong growth in March.