Although the economy continued growing, now in its 107th month of expansion in a row, the Institute for Supply Management (ISM) March 2018 Manufacturing Report on Business shows manufacturing industry activity dropped to 59.3, 1.5 points lower than February’s 60.8 reading. Still, because the purchasing managers’ index (PMI) reading is above 50, it indicates industry expansion albeit at a slower pace than the previous month. Why did manufacturing sector activity decline from February to March — and how are these changes impacting manufacturers? Let’s look at the numbers.
On the up and up
While the industry is expanding more slowly, not all manufacturing indexes saw negative changes. In fact, the Prices index rose 3.9 points from February’s 74.2 to a whopping 78.1 in March, marking 25 consecutive months of expansion and increasing at a faster rate. While it was the sole increase and marks a faster rate of change for the Prices index this month, the Backlog of Orders index held steady at 59.8, still its highest since May 2004, showing continued growth now for the 14th month in a row.
Also growing were the following indexes, just at slower rates than in February:
- New Orders — Although it decreased 2.3 points to 61.9 in March from February’s 64.2, the New Orders index has been growing for 27 consecutive months.
- Production — Dropping only one point from 62.0 in February to 61.0 in March, Production is continuing its 19-month growth pattern.
- Employment — Going strong for 18 months in a row, the Employment index dropped from 59.7 to 57.3 in March, down 2.4 points.
- Inventories — Down 1.2 points from 56.7 to 55.5 in March, the Inventories index held on to its upward trend, which is now in its third month.
- Imports — With 14 months of consecutive growth, the Imports index lowered slightly by 0.8 to 59.7 from February’s 60.5.
A couple decreases
The single index below 50 in the March Report was Customers’ Inventories. Like February, it again registered as “Too Low,” a now faster 18-month trend, as it dropped 1.7 points to 42.0 from February’s 43.7. In addition, only one index was slowing in March: Supplier Deliveries. It dropped 0.5 from 61.1 in February to 60.6 in March.
With both the economy and the manufacturing sector still expanding, the March report paints a positive picture for manufacturers. In fact, manufacturing growth “remains underpinned by strong domestic and global economies.” Plus, 17 of the 18 industries surveyed in the March Report conveyed increases while only one — apparel, leather, and allied products — showed a decrease.
Behind these changes were strong demand and orders alongside high raw materials prices. These have allowed businesses to grow, but the skills gap continues to hinder production. Hasty choices due to talk of and concern over imported aluminum and steel tariffs caused further challenges. According to the report, manufacturers said “new tariffs are causing concern across the supply chain. Full impact will take a few weeks to reveal itself.”