The manufacturing-sector survey suggests a slow expansion but.

The Institute for Supply Management’s Manufacturing Purchasing Managers’ Index fell to 57.1 in March, down 1.5 points from 58.6 percent in February (50 neutral). March is the 22nd reading in a row above the neutral threshold but the level has continued the downward trend since the March 2021 peak (see at the top of the first chart). The results of the survey indicate that the manufacturing sector continues to expand but price pressures have worsened. The report further suggests that the labor deficit has remained a significant headwind since leaving and retiring, although perhaps slightly lower than in the previous month. Overall, survey respondents are optimistic about future needs.

The new orders index fell sharply, losing 7.9 points to 53.8 percent in March. It has been above 50 for 22 consecutive months but is at its lowest level since the post-lockdown (see chart below). The new export orders index, a separate measure from the new orders, fell to 57.1 vs. 53.2 in February. The new export order index has been above 50 for 21 consecutive months. The backlog-of-order index came in at 60.0 vs. 65.0 in February, a 5-point fall (see below chart first). This measure came back from a record-high 70.6 result in May 2021 but remained above 50 for 21 consecutive months. The index suggests that manufacturers’ backlogs continue to grow but slowed in March.

The manufacturing index recorded 54.5 percent results in March, down 4.0 points from February. The index has been above 50 for 22 months but is at its lowest level since sinking in early 2020 (see chart 2).

The employment index showed a strong gain in March, coming in at 56.3 percent for the seventh month in a row, above the neutral and 16th reading, above or below the neutral 50 level (see chart 2). Running a neutral or above result gives an indication that some labor problems plagued by production may begin to ease in the coming months. The Bureau of Labor Statistics’ March employment situation report showed a gain of 431,000 non-farm wage jobs, with 38,000 jobs added to manufacturing.

Consumer inventory is still considered very low in March, with the index coming in at 34.1, up 2.3 points since February (results below 50 indicate very low customer inventories). The index has been below 50 for 6 consecutive months. Insufficient inventory is a positive sign for future production.

The price index for input instruments jumped in March, rising 11.5 points to 87.1 percent from 75.6 percent in February (see third chart). The index is moving back to its recent high of 92.1 in June 2021 and suggests that price pressures are accelerating again. Meanwhile, the supplier delivery index registered 65.4 results in March, 0.7 points lower than the February result. Emergence suggests that March delivery slows down again and the pace slows down somewhat.

Demand in the manufacturing sector has expanded again but the breadth of expansion has shrunk, suggesting a slowdown. Labor shortages, material shortages, and logistical problems continue to hamper our ability to meet those needs. Although some modest progress has been made, the period of normalization has been extended through repeated waves of covid, labor turnover, and retirement of workers. Returning to normal is maintaining upward pressure on the delayed price. Recent events in Ukraine could be another source of disruption and further delays in returning to normalcy.

Robert Hughes

Bob Hughes

Robert Hughes joined AIER in 2013 for over 25 years researching economic and financial markets on Wall Street. Bob previously headed Brown Brothers Harriman’s Global Equity Strategy, where he developed an equity investment strategy that combines top-down macro analysis with bottom-up fundamentals.

Prior to BBH, Bob was a senior equity strategist at State Street Global Markets, a senior economic strategist at Prudential Equity Group, and a senior economist at Citicorp Investment Services and a financial markets analyst. Bob holds an MA in Economics from Fordham University and a BS in Business from Lehigh University.

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