Economic activity in the manufacturing sector expanded in March after 16 months of contraction, with demand improving and output surging, the Manufacturing Institute for Supply Management (ISM) reported Monday.
ISM recorded a manufacturing PMI of 50.3% in March, crossing the 50% threshold into growth territory for the first time since September 2022. “We are highly likely in our next growth cycle,” Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, said in a teleconference.
The index is based on a survey of executives in 18 industries. The PMI is considered a leading economic indicator and a barometer of where manufacturing is headed. An index reading above 50% indicates economic expansion, while below 50% shows contraction.
Of the six biggest manufacturing industries, four—Food, Beverage & Tobacco Products; Fabricated Metal Products; Chemical Products; and Transportation Equipment—registered growth in March.
“Demand remains at the early stages of recovery, with clear signs of improving conditions,” Fiore said. “Production execution surged compared to January and February, as panelists’ companies re-enter expansion. Suppliers continue to have capacity but are showing signs of struggling, due in large part to their raw material supply chains.”
The New Orders Index gained 2.2 percentage points, moving back into expansion territory at 51.4% after having dipped to 49.2% in February.
“We actually had three good months of new orders, starting back in January,” Fiore said. “February was slight contraction, but very slight at 49.2%. … So we got pretty good performance on the new order side which we needed because we've been bleeding off the backlog for 18 months.”
Five of the six largest manufacturing sectors—Chemical Products; Fabricated Metal Products; Food, Beverage & Tobacco Products; Transportation Equipment; and Computer & Electronic Products— reported increased production, surging ISM’s Production Index 6.2 percentage points for a reading of 54.6%, the highest production reading since June 2022.
Raw materials prices increased in March for the third month in a row, registering 55.8% on the Prices Index, up 3.3% compared to a reading of 52.5% in February.
“Commodity prices continue to be volatile, especially crude oil, aluminum and plastics,” Fiore said.
The Backlog of Orders (46.3%), New Export Orders (51.6%) and Imports (53) index readings were unchanged from February.
The Employment Index improved slightly by 1.5 points but remained in contraction at 47.4%. Layoffs accounted for 76% of reduction activity in March, up from 50% in February.
“Panelists’ comments in March were again equally split between companies adding and reducing head counts,” Fiore said. “This approximately one-to-one ratio has been consistent since October 2023.”
The Inventories Index remained in contraction at 48.2% following a reading of 45.3% in February.
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