ISM Manufacturing Index (PMI) Accelerates in March, Beating the Forecast

New Orders, Employment Indexes Signal Acceleration in Manufacturing Sector Growth and Employment

The Institute for Supply Management (ISM) manufacturing index (PMI) came in at a solid 55.3 in March, beating the consensus forecast. That’s up 1.1 percentage points from February and new orders remain very solid.

The consensus forecast was 54.2, ranging from a low of 53.0 to a high of 55.5.

“Comments from the panel reflect continued expanding business strength, supported by gains in new orders and employment,” Timothy R. Fiore, Chair of the ISM Manufacturing Business Survey Committee, said.

“Demand expansion continued, with the New Orders Index returning to the high 50s, the Customers’ Inventories Index improving but remaining too low, and the Backlog of Orders Index softening to marginal expansion levels.

The New Orders Index came rose 1.9% to a strong 57.4%, up from the February reading of 55.5%. The Production Index gained 1 point from 54.8% to 55.8%.

The Employment Index shot up 5.2% from 52.3% to 57.5%, indicating a solid number of manufacturing jobs in the upcoming jobs report. The Supplier Deliveries Index declined 0.7% from 54.9% to 54.2%.

The Inventories Index fell 1.6% from 53.4% to 51.8%, while the Prices Index rose 4.9% from 49.4% to 54.3%, indicating a return of increasing raw materials prices after a two-month respite.

Of the 18 manufacturing industries, 16 reported growth in March. Only Apparel, Leather and Allied Products and Paper Products reported contraction.

Manufacturing Panel Responses

• “Customer orders remain strong.” (Textile Mills)
• “The electronics industry seems to be slowly coming out of crisis mode. Lead times and costs have leveled out in some commodities, and dynamic random access memory (DRAM) prices are actually coming down.” (Computer & Electronic Products)
• “Brexit continues to be a concern, despite the fact that our organization has already rolled out a plan to minimize its impact.” (Chemical Products)
• “Business remains very strong amid rumors of a slowdown, but forecasts do not indicate this. Electronics are at tight capacity from manufacturers, with no [change] in the near future.” (Transportation Equipment)
• “Strong customer orders continue.” (Food, Beverage & Tobacco Products)
• “Current weather conditions causing significant delivery delays [and] diminishing our production capabilities.” (Machinery)
• “Strong business momentum coming into January and early February has slowed to typical seasonal business conditions for our industry.” (Miscellaneous Manufacturing)
• “General procurement levels remain strong based on demand. Backlog for domestic new and repaired equipment continues to grow. Production meeting customer delivery requirements is a challenge. Still experiencing a skills gap in hiring qualified shop personnel, machinists and mechanics.” (Fabricated Metal Products)
• “Steel tariffs continue to put upward pressure on our input costs. The government shutdown delayed the process of gaining exemptions to the tariffs.” (Petroleum & Coal Products)
• “Awaiting with anticipation the outcome of the U.S.-China trade deal.” (Plastics and Rubber Products)
• “Experienced a reduction in orders, with forecasted softness going into Q2.” (Primary Metals)
• “Weather in the domestic market is constraining homebuilding across the nation — too wet in the south, severe winter in the north. Expectations are that homebuilding backlog is growing, and a surge of domestic business will come in May and June. Internationally, the Chinese trade war is still holding business back, but expectations are that in April or May, business will spring back materially as tariffs resolve.” (Wood Products)
• “Skilled labor is still tough to find.” (Apparel, Leather & Allied Products)
• “Steel in U.S. remains strong, driving numerous product lines.” (Nonmetallic Mineral Products)
• “Business is very strong and has been for over two years.” (Furniture & Related Products)