Manufacturing Activity Expands in March, but Signs of Underlying Weakness Remain

Despite job losses in the manufacturing sector, manufacturing economic activity expanded in March for the first time in the prior six months

The Institute for Supply Management (ISM)’s March Purchasing Managers’ Index (PMI) was 51.8%, up 2.3 percentage points from February’s reading, according to an ISM report released today. The figure reflects expansion in 12 of the 18 manufacturing industries tracked, including printing; furniture; machinery; plastics and rubber products; and fabricated metal, plastic, rubber, paper and chemical products.

ISM’s indices tracking new orders, production and prices all saw increases in March. Of particular note, the prices index jumped 13 percentage points in March to 51.5%, indicating higher raw materials prices for the first time since October 2014.

Meanwhile Markit Economics’ U.S. Manufacturing PMI in March registered 51.5, slightly higher than February’s 51.3 figure, signaling tepid improvement in operating conditions and the weakest quarterly upturn since the third quarter of 2012, the firm noted.

A rise in new work and sustained growth in employment topped positive aspects of March 2016’s reading, while manufacturing output growth remained unchanged from the 28-month low reported in February 2016, Markit said. Analysts also found an anemic rise in production volumes was linked “to subdued client spending patterns so far this year and a corresponding lack of pressuring on operating capacity.”

“Subdued client spending patterns within the energy sector, ongoing pressure from the strong dollar and general uncertainty about the business outlook were cited as factors weighing on new order flows in March,” said Tim Moore, senior economist at Markit. “Meanwhile, price discounting strategies resulted in the first back-to-back drop in factory gate charges for around three-and-a-half years, suggesting another squeeze on margins despite lower material costs across the manufacturing sector.”

- Nicholas Stern, NACM editorial associate

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