US: Manufacturing Sentiment Falls as COVID-19 Starts to Bite

Apr 01 20, 15:01 GMT

The ISM manufacturing index fell into contractionary territory in March, coming in at 49.1 from 50.1 in February. The analyst consensus expected a steeper decline in the index (44.5).
Declines were broad-based across most sub-indices. Demand was weak as the new orders index fell to its lowest point since the 2008 financial crisis (42.2), and the backlog of orders plummeted to 45.9.
Consumption, as measured by the production and employment sub-indices, was also very weak. The production sub-index dropped to 47.7 and employment to 43.8. This was the lowest employment reading since 2009.
Measures for inputs were also concerning, particularly the supplies deliveries sub-index. The increase in this sub-index was reflective of the challenges supply chains are facing due to COVID-19.
Despite the impact of COVID-19, 10 of18 manufacturing industries reported growth in March.

Key Implications

We are starting to see the impacts of COVID-19 in the data. Today’s report showed that sentiment slumped in the manufacturing sector as respondents across nearly every sub-sector expressed concerns on the virus and how it will impact production. Notably, this fed through to employment with this sub-index falling to its lowest level since the crisis, entirely reflective of the shutdowns and layoffs occurring across the U.S.
The oil price shock is also weighing on some industries. Chemical products and petroleum and coal products industries worried that the decline in oil prices were affecting business activity.
Notably, the only respondent to show positivity was the food, beverage, and tobacco products industry, which saw record number of orders due to COVID-19.
The pain in the manufacturing sector is likely to get worse in April as economic shutdowns become more prominent. Many states only issued lockdown measures in mid to late March. As a result, some of the corresponding drop off in production may not have been captured in today’s release. April’s reading will show the full extent of the coronavirus impact on American manufacturing.