ISM reports a decline in March manufacturing but growth remains intact

While remaining in growth mode, March manufacturing released by the Institute for Supply Management (ISM) today, was down overall compared to February, according to the most recent edition of the organization’s Manufacturing Report on Business.

The PMI, the ISM’s index to measure growth, fell 1.4 percent to 51.5 (a PMI of 50 or greater represents growth), declining for the fifth straight month since reaching 57.9 in October 2014. And it is 4 percent below the 12-month average of 55.5. The March PMI is at its lowest level since May 2013’s 50.1.

ISM said that economic activity in the manufacturing sector has grown for 27 straight months, while the over all economy has shown growth for the last 70 months.

Including the PMI, three of the report’s four key metrics were down in March.

New orders, referred to as the engine that drives manufacturing, dropped 0.7 percent to 51.8 and grew for the 28th month, but even with growth intact new orders in March were at its lowest level since May 2013, when it was at 51.1. Production was up 0.1 percent to 53.8, and employment fell 1.4 percent to 50.0 for its lowest reading since May 2013’s 49.5.

Ten of the 18 sectors reporting into the ISM said they experienced growth in March.

In the ISM member comments section of the report, manufacturers cited various things impacting their operations, both positive and negative.

A computer and electronics respondent said that business is starting to slow down, with oil prices having a major effect on energy markets. And a paper products respondent noted that business in March saw improvements over January and February, while a textile mills respondent said that congestion at West Coast ports is still delaying incoming products.

“We rounded out the first quarter on a little bit of a down note, but things are still growing with the core four metrics each above 50, which is nothing to write home about but it is well balanced,” said Brad Holcomb, chair of the ISM Manufacturing Survey Business Committee, in an interview. “Issues like the delays at West Coast ports and lower oil prices would not be too astounding alone but collectively they have produced a bit of a chill on manufacturing. I see an opportunity for the sector to get over and beyond that in the coming months.”

For that to happen, though, he said that current strength needs to remain intact such as consumer confidence, which he said drives spending on U.S.-manufactured products. Another positive trend he cited is that employment gains are steady, with “more paychecks out there,” which serves as good news.

Even with a modest, low-growth quarter, which was akin to the first quarter of 2014, there remains room for growth for the remainder of 2015, he explained.

While new orders were again down, Holcomb said he is optimistic they can head up from current levels.

“There is no reason we are not well-positioned for increases,” he said. “This quarter correlates to a 3 percent gain in real GDP, and everyone wants to get that to 4 percent, but there is a ways to go to get back to that level. We need the global economy to continue to respond and have China fix its problems. The Eurozone PMI is doing well too, and we need those things to continue and have consumer confidence move up as well.”

March supplier deliveries dropped 3.8 percent to 50.5, which Holcomb attributing the decline to West Coast port congestion issues, with suppliers still catching up a little bit, and prices were up 4 percent at 39.0, paced by gains in dairy and gasoline. Even with the increase, prices below 50 are viewed by the ISM as decreasing, and at 39.0 Holcomb said that prices were actually lower in Match than they were in February.

Holcomb explained that prices came down for the fifth straight month as oil prices continue to decline, with the subsequent effects on other commodities like steel, metals, and resin take time to filter in and flow through as well.

Inventories were down 1 percent to 51.5, with the current levels still near the 50 mark showing that inventories are extremely well-managed, said Holcomb.

“Manufacturers are doing what they need to do to keep the right inventories and the right levels on hand to feed operations, which has become an art and science, despite things like the port issues which leads to trouble getting raw materials in from overseas through the West Coast,” he said. “That really shows up in the numbers.”