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Despite weather, manufacturing ends Q1 with growth intact, says ISM

By Jeff Berman, Group News Editor
April 01, 2014

Manufacturing growth was evident for the month of March as well as the first quarter, according to the monthly Manufacturing Report on Business released by the Institute for Supply Management (ISM).

The PMI, the index used by the ISM to measure manufacturing activity, headed up 0.5 percent to 53.7 in March, which is 0.3 percent below the 12-month average of 54.0 and its fourth-lowest reading since last May’s 50.0. The PMI is still over the 50 mark—which is the benchmark of strong economic activity—in 15 of the last 16 months, coupled with the overall economy growing for 58 straight months, according to the ISM.

For the report’s four key metrics, including PMI, three were up and one fell. New Orders, often known as the engine driving manufacturing, rose 0.6 percent to 55.1. Production was up 7.7 percent to 55.9, and Employment dropped 1.2 percent to 51.1.

The gains in March’s PMI were largely consistent with comments from ISM members cited in the report.

A petroleum and coal products respondent observed that business is beginning to heat up along with the weather, and a machinery respondent said that the economy is looking positive and commodities are stable. But not all respondents were feeling spring-like just yet, with a food, beverage, and tobacco respondent saying that the “weather has caused major delays on inbound materials and outbound sales. We need spring.”

Based on the mostly positive trends within the report, Bradley J. Holcomb, CPSM, CPSD, chair of the ISM Manufacturing Business Survey Committee, observed that it appears things have thawed out in the manufacturing sector to a degree.

“We are progressively up again,” noted Holcomb. “January, February and March each showed sequential gains, and the PMI is almost exactly at the current 12-month average of 54.0 and above the 24-month average of 52.8 and the 36-month average of 53.1. All indications from the supporting indices, which are all above 50, show that things are on track for a positive year.”

New Orders, which are commonly considered the engine that drives manufacturing, have made strides in bouncing back from January’s 13.2 percent decline to 51.2 after coming off a recent December 2013 high of 64.4.

The growth in new orders in March, coupled with largely positive comments from ISM member respondents in the report, are forward-looking, which Holcomb said will help to feed the whole system. And he pointed out that the Backlog of Orders in March was up generously, increasing 5.5 percent to 57.5, which indicates that older orders are also waiting to be produced.

With a 7.7 percent jump to 55.9 for production, Holcomb said that gain suggests that this is a weather effect, coming off of a 48.2 percent February reading.

“The 55.9 reading is ‘springing up’ from that, with plants up and running and enough supplies and inventories in good shape,” he said. “I think production is going to stay in good shape, because of strong momentum with new orders and backlog of orders.”

Supplier Deliveries in March maintained its trend of slowing for the tenth straight month, with a 4.5 percent difference from February to March from 58.5 to 54.0 (under 50 indicates faster deliveries).

February’s 58.5 was described as “pretty slow” by Holcomb and is a byproduct of the weather effect, and March represents an indication of a better situation, with suppliers catching up on their deliveries.

The weather also impacted employment in March, but Holcomb said it is primed for a bounce back in April, due to expected increases on the new orders side and should wipe out March’s 1.2 percent decline.

When asked about the overall state of manufacturing in the four years since coming out of the recession, Holcomb said things have been moving up in fits and starts with a few departures along the way.

“The economy seems to be gaining strength, not just based on this report but also based on other economic news like consumer confidence,” he said. “The first quarter reflects all of that, and it was pretty solid in that things moved up month over month, despite the worst weather conditions in a couple of decades. The underlying demand was there more so than what we have really seen in terms of output. It just feels like it is going be a pretty good year, and we are off to a reasonably good start despite the poor weather.”

 

About the Author

Jeff Berman headshot
Jeff Berman
Group News Editor

Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. .(JavaScript must be enabled to view this email address).


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