March ISM Report Reveals Weakening Demand, Contraction in New Orders and Backlogs

According to the latest Manufacturing ISM Report on Business, economic activity in the US manufacturing sector contracted in March after two consecutive months of expansion preceded by 26 straight months of contraction. The Manufacturing PMI registered 49 percent in March, 1.3 percentage points lower compared with the 50.3 percent recorded in February. 

Indications that demand weakened include contraction in the New Orders, New Export Orders, and Backlog of Orders Indices and Customers’ Inventories remaining in “too low” territory. The New Orders Index contracted for the second month in a row following a three-month period of expansion; the March figure of 45.2 percent is 3.4 percentage points lower than the 48.6 percent recorded in February. The New Export Orders Index of 49.6 percent is 1.8 percentage points lower than the 51.4 percent registered in February. The Backlog of Orders Index registered 44.5 percent, down 2.3 percentage points compared with the 46.8 percent recorded in February. The Customer Inventories Index registered 46.8 percent, up 1.5 percentage points compared with February’s reading of 45.3 percent.

The March Production Index (48.3 percent) was 2.4 percent lower than February’s figure of 50.7 percent, reflecting a contraction in factory output after two months of expansion preceded by eight months of contraction. The Employment Index registered 44.7 percent, down 2.9 percentage points from February’s figure of 47.6 percent.

Inputs, defined as supplier deliveries, inventories, prices and imports, all expanded, which is not a positive sign when demand is moving in the opposite direction. The Supplier Deliveries Index indicated a continued, albeit slower rate of change, while the Prices Index expanded by 7 points to 69.4 percent. The Imports Index continued its expansion in March, registering 2.5 percentage points lower than February’s reading of 52.6 percent. The Inventories Index was up 3.5 percentage points compared with February’s reading of 49.9 percent, signaling a return to expansion after six months of contraction. The ISM sees inventory growth as a temporary move to avoid tariffs.

46 percent of manufacturing gross domestic product (GDP) contracted in March, up from 24 percent in February. The share of manufacturing sector GDP registering a composite PMI calculation at or below 45 percent (a good barometer of overall manufacturing weakness) was 7 percent in March, a 5-percentage point increase compared with the 2 percent reported in February. 

The nine manufacturing industries reporting growth in March—listed in order—are: Textile Mills; Petroleum & Coal Products; Fabricated Metal Products; Primary Metals; Computer & Electronic Products; Non-metallic Mineral Products; Transportation Equipment; Electrical Equipment, Appliances & Components; and Miscellaneous Manufacturing. The seven industries reporting contraction in March, in order, are: Wood Products; Paper Products; Plastics & Rubber Products; Furniture & Related Products; Chemical Products; Food, Beverage & Tobacco Products; and Machinery.

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