The March ISM Manufacturing Index registered 46.3, well short of expectations calling for a 48.0 print. The index fell 1.4 percentage points (pp) from February’s reading of 47.7.
New orders and new export orders fell 2.7 pp and 2.4 pp, respectively, to 44.3 and 47.6.
The backlog of orders sub-index fell to 43.9, down 1.2 pp from February’s 45.1 print.
The production index rose 0.5 pp to 47.8, while the employment index edged down another 2.2 pp to 46.9.
The supplier deliveries sub-index fell to 44.8 from 45.2 in February – the lowest reading since March 2009. Amid cooling demand and falling raw material prices, the prices index pulled back 2.1 pp to 49.2 in March – indicating falling raw materials prices.
Six of 18 manufacturing industries reported growth in March. The industries reporting growth are Printing & Related Support Activities; Miscellaneous Manufacturing; Fabricated Metals Products; Petroleum & Coal Products; Primary Metals; and Machinery.
Key Implications
Another tough month for the manufacturing sector – albeit one that was expected. As the Fed keeps borrowing costs high to fight inflation, interest rate sensitive goods are bearing the brunt of the demand reduction. Moreover, as the hangover from the pandemic goods buying binge slowly wears off, shifting consumer preferences continue to weigh on goods demand.
Unfortunately for the manufacturing sector, the outlook for the rest of the year doesn’t look much better. Recession jitters came out in force early in March as turmoil in the banking sector rattled markets. Looking forward, we expect consumer demand for durable goods to begin to fall, weighing on the sector overall. The one silver lining is the ongoing improvement on supply chains may help relieve the pent-up demand in the automotive sector over the coming year.
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