| Consensus | Consensus Range | Actual | Previous | |
|---|---|---|---|---|
| Index | 48.3 | 47.5 to 49.5 | 50.3 | 47.8 |
Highlights
US manufacturing activity posted the first expansion in 17 months in March as the key index popped just above the neutral line of 50, thanks to recovering new demand and production and slower contraction in employment, data from the Institute for Supply Management showed.
The sector index compiled by the ISM, which shows general direction, rose 2.5 percentage points to 50.3 in March after falling 1.3 percentage points to 47.8 in February and rising 2.0 points to 49.1 in January. It was stronger than the median economist forecast of 48.3 but Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, predicted last month that the index would rise above 50 in March or April, citing solid fundamentals.
"Demand remains at the early stages of recovery, with clear signs of improving conditions," Fiore said in a statement."Production execution surged compared to January and February, as panelists' companies reenter expansion. Suppliers continue to have capacity but are showing signs of struggling, due in large part to their raw material supply chains."
New orders fell in February due to unfavorable effects of annual seasonal adjustments that had pushed them up in January. Fiore said last month that the February figure would be just above 49 without unfavorable seasonal factors.
Fiore told reporters that new orders and production are unlikely to fall back into negative territory in coming months, and predicted that employment conditions should recover to expansion in May or June. The Federal Reserve would not like the prices index for March, which rose to the highest level since July 2022, Fiore said, but added that it is consistent with the recent PCE (personal consumption expenditures) and CPI data.
Among the five subindexes that directly factor into the manufacturing PMI, the new orders Index rebounded 2.2 percentage points to 51.4 in March after falling 3.3 points to 49.2 in February and rising 5.5 points to 52.5 in January. It is back in positive territory after posting the first growth in 17 months in January. The production index jumped 6.2 points to 54.6 in March after dipping 2.0 points to 48.4 in February and rising 0.5 point to 50.4 in January.
The employment index contracted for the sixth straight month but it rose 1.5 points to 47.4 after slipping 1.2 points to 45.9 in February. Companies are continuing to reduce head counts through layoffs (which account for 76 percent of reduction activity, up from 50 percent in February), attrition and hiring freezes."Panelists' comments in March were again equally split between companies adding and reducing head counts," Fiore said.
The delivery performance of suppliers to manufacturing organizations was"faster" after being"slower" in February and"faster" in the previous 16 months. The supplier deliveries index edged down 0.2 point to 49.9 in March after rising rose 1.0 point to 50.1. This is the only ISM subindex that is inversed; a reading of above 50 indicates slower deliveries, which is typical as the economy improves and customer demand increases. The manufacturing inventories index contracted for 14 months. It rose 2.9 points to 48.2 in March after falling 0.9 point to 45.3 in February.
Among other subindexes, the customers' inventories index showed contraction (below 50) for the fourth straight month, falling 1.8 points to 44.0 in March after rising 2.1 points to 45.8 in February. It indicates the level is"too low," remaining at a level accommodative for future production. The prices index indicated growth for the third month in a row after showing the first increase in nine months in January, when member firms agreed to pay higher costs for some commodities. It rose 3.3 points to a 20-month high of 55.8 in March after dipping 0.4 point to 52.5 in February and surging 7.7 points to 52.9 in January.
The sector index compiled by the ISM, which shows general direction, rose 2.5 percentage points to 50.3 in March after falling 1.3 percentage points to 47.8 in February and rising 2.0 points to 49.1 in January. It was stronger than the median economist forecast of 48.3 but Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, predicted last month that the index would rise above 50 in March or April, citing solid fundamentals.
"Demand remains at the early stages of recovery, with clear signs of improving conditions," Fiore said in a statement."Production execution surged compared to January and February, as panelists' companies reenter expansion. Suppliers continue to have capacity but are showing signs of struggling, due in large part to their raw material supply chains."
New orders fell in February due to unfavorable effects of annual seasonal adjustments that had pushed them up in January. Fiore said last month that the February figure would be just above 49 without unfavorable seasonal factors.
Fiore told reporters that new orders and production are unlikely to fall back into negative territory in coming months, and predicted that employment conditions should recover to expansion in May or June. The Federal Reserve would not like the prices index for March, which rose to the highest level since July 2022, Fiore said, but added that it is consistent with the recent PCE (personal consumption expenditures) and CPI data.
Among the five subindexes that directly factor into the manufacturing PMI, the new orders Index rebounded 2.2 percentage points to 51.4 in March after falling 3.3 points to 49.2 in February and rising 5.5 points to 52.5 in January. It is back in positive territory after posting the first growth in 17 months in January. The production index jumped 6.2 points to 54.6 in March after dipping 2.0 points to 48.4 in February and rising 0.5 point to 50.4 in January.
The employment index contracted for the sixth straight month but it rose 1.5 points to 47.4 after slipping 1.2 points to 45.9 in February. Companies are continuing to reduce head counts through layoffs (which account for 76 percent of reduction activity, up from 50 percent in February), attrition and hiring freezes."Panelists' comments in March were again equally split between companies adding and reducing head counts," Fiore said.
The delivery performance of suppliers to manufacturing organizations was"faster" after being"slower" in February and"faster" in the previous 16 months. The supplier deliveries index edged down 0.2 point to 49.9 in March after rising rose 1.0 point to 50.1. This is the only ISM subindex that is inversed; a reading of above 50 indicates slower deliveries, which is typical as the economy improves and customer demand increases. The manufacturing inventories index contracted for 14 months. It rose 2.9 points to 48.2 in March after falling 0.9 point to 45.3 in February.
Among other subindexes, the customers' inventories index showed contraction (below 50) for the fourth straight month, falling 1.8 points to 44.0 in March after rising 2.1 points to 45.8 in February. It indicates the level is"too low," remaining at a level accommodative for future production. The prices index indicated growth for the third month in a row after showing the first increase in nine months in January, when member firms agreed to pay higher costs for some commodities. It rose 3.3 points to a 20-month high of 55.8 in March after dipping 0.4 point to 52.5 in February and surging 7.7 points to 52.9 in January.
Market Consensus Before Announcement
The ISM manufacturing index has been in contraction the last 16 months and isn't expected to emerge in March, at a consensus 48.3 versus February's much lower-than-expected 47.8.
Definition
The manufacturing composite index from the Institute for Supply Management is a diffusion index calculated from five of the eleven sub-components of a monthly survey of purchasing managers at roughly 300 manufacturing firms nationwide. The survey queries purchasing managers about the general direction (tracked in volumes) of production, new orders, order backlogs, their own inventories, customer inventories, employment, supplier deliveries, exports, and imports. Data on changes in input prices (prices paid) are also tracked. The five components of the composite index are new orders, production, employment, supplier deliveries, and inventories (their own, not customer inventories). The five components are equally weighted. The questions are qualitative rather than quantitative; that is, they ask about the general direction rather than the specific level of activity. Each question is adjusted into a diffusion index which is calculated by adding the percentage of positive responses to one-half of the unchanged responses.
Description
Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data such as the ISM manufacturing index, investors will know what the economic backdrop is for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly and causing potential inflationary pressures.
The ISM manufacturing data give a detailed look at the manufacturing sector, how busy it is and where things are headed. Since the manufacturing sector is a major source of cyclical variability in the economy, this report has a big influence on the markets. More than one of the ISM sub-indexes provide insight on commodity prices and clues regarding the potential for developing inflation. The Federal Reserve keeps a close watch on this report which helps it to determine the direction of interest rates when inflation signals are flashing in these data. As a result, the bond market is highly sensitive to this report.
Importance
The ISM manufacturing composite index indicates overall factory sector trends. The relevance of this indicator is enhanced by the fact that it is available very early in the month and is not subject to revision.
Interpretation
The bond market will rally (fall) when the ISM manufacturing index is weaker (stronger) than expected. Equity markets prefer lower interest rates and could rally with the bond market. However, a healthy manufacturing sector, indicated by rising ISM index levels, bodes well for corporate earnings and is bullish for the stock market.
The level of the ISM manufacturing index indicates whether manufacturing and the overall economy are growing or declining. Historically, readings of 50 percent or above are associated with an expanding manufacturing sector and healthy GDP growth overall. Readings below 50 indicate a contracting manufacturing sector but overall GDP growth is still positive until the ISM index falls below 42.5 (based on statistics through January 2011). Readings in between these two levels suggest that manufacturing is declining while GDP is still growing but only very slowly.
In addition to the ISM manufacturing composite index, the various sub-components contain useful information about manufacturing activity. The production component is related to industrial production, new orders to durable goods orders, employment to factory payrolls, prices to producer prices, export orders to merchandise trade exports and import orders to merchandise imports.
Vendor (supplier) deliveries are an important component of report. The more slowly orders are filled and delivered, the stronger the economic growth and the greater the potential for inflation. When orders are filled quickly, it means that producers don't have as many to fill.
The ISM manufacturing composite index and its sub-components can be subject to some monthly volatility, making the three-month average of the monthly levels more indicative of the trend.
The ISM manufacturing data give a detailed look at the manufacturing sector, how busy it is and where things are headed. Since the manufacturing sector is a major source of cyclical variability in the economy, this report has a big influence on the markets. More than one of the ISM sub-indexes provide insight on commodity prices and clues regarding the potential for developing inflation. The Federal Reserve keeps a close watch on this report which helps it to determine the direction of interest rates when inflation signals are flashing in these data. As a result, the bond market is highly sensitive to this report.
Importance
The ISM manufacturing composite index indicates overall factory sector trends. The relevance of this indicator is enhanced by the fact that it is available very early in the month and is not subject to revision.
Interpretation
The bond market will rally (fall) when the ISM manufacturing index is weaker (stronger) than expected. Equity markets prefer lower interest rates and could rally with the bond market. However, a healthy manufacturing sector, indicated by rising ISM index levels, bodes well for corporate earnings and is bullish for the stock market.
The level of the ISM manufacturing index indicates whether manufacturing and the overall economy are growing or declining. Historically, readings of 50 percent or above are associated with an expanding manufacturing sector and healthy GDP growth overall. Readings below 50 indicate a contracting manufacturing sector but overall GDP growth is still positive until the ISM index falls below 42.5 (based on statistics through January 2011). Readings in between these two levels suggest that manufacturing is declining while GDP is still growing but only very slowly.
In addition to the ISM manufacturing composite index, the various sub-components contain useful information about manufacturing activity. The production component is related to industrial production, new orders to durable goods orders, employment to factory payrolls, prices to producer prices, export orders to merchandise trade exports and import orders to merchandise imports.
Vendor (supplier) deliveries are an important component of report. The more slowly orders are filled and delivered, the stronger the economic growth and the greater the potential for inflation. When orders are filled quickly, it means that producers don't have as many to fill.
The ISM manufacturing composite index and its sub-components can be subject to some monthly volatility, making the three-month average of the monthly levels more indicative of the trend.
