ISM Shows US Manufacturing Held Up Better Than Expected in March

With a recession all but formalized in the coming economic reports, it’s hard to get excited about some of the economic reports that would have included data ahead of the mass layoffs and furloughs that translated to a record-smashing weekly jobless claims tally of more than 3.2 million. The Institute for Supply Management (ISM) has released its Report on Business for manufacturing indicating that the month of March as a whole showed a slight contraction.

While the ISM indicated that the overall economy grew for the 131st consecutive month, the 49.1% PMI reading for March was down 1 percentage point from the 50.1% in February. Dow Jones (Wall Street Journal) had issued a consensus estimate of 44.5, versus a consensus estimate of 44.0 published by Econoday.

While the number is not as negative as expected, the sentiment is very negative or cautious by a 2 to 1 ratio. It is also worth noting that the United States is more geared toward the services economy rather than just looking at the manufacturing sector. The terms coronavirus and COVID-19 are used all throughout the report, and the news there continues to get worse rather than better. Also worth noting, the comments all sound cautious around the coronavirus, but they do not seem to capture some of the negative impacts that have been seen in other reports.

The New Orders Index was 42.2, down 7.6 percentage points from February reading of 49.8%. The ISM Production Index was 47.7%, a drop of 2.6 percentage points from the February reading of 50.3%. The Backlog of Orders Index fell by 4.4 points down to 45.9%.

Things are looking bad when it comes to prices and jobs, but a plummeting price of oil and industrial commodities and a surging number of jobless claims may have only been partially recognized here. The Employment Index fell by 3.1 percentage points to 43.8% in March, but that was still negative at 46.9% in February. The ISM’s Prices Index fell by a sharp 8.5 percentage points to 37.4% in March, after an already weak February reading of 45.9%.

Of the 18 manufacturing industries covered, these 10 industries still reported growth in March:

  • Printing & Related Support Activities
  • Food, Beverage & Tobacco Products
  • Apparel, Leather & Allied Products
  • Wood Products
  • Paper Products
  • Chemical Products
  • Computer & Electronic Products
  • Primary Metals
  • Miscellaneous Manufacturing
  • Plastics & Rubber Products

The six industries reporting contraction in March:

  • Petroleum & Coal Products
  • Textile Mills
  • Transportation Equipment
  • Furniture & Related Products
  • Fabricated Metal Products
  • Machinery

While a reading above 50.0 indicates that the manufacturing economy is generally expanding (and under 50.0 contracting), the PMI report does include the note that PMI readings above 42.8% over a period generally indicates that there is overall economic expansion.