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by Tom Moeller April 1, 2020
• Broad-based component declines led by fewer new orders.
• Pricing power falls sharply.
• Most readings move below the break-even level of 50.
Activity in the factory sector weakened just slightly last month despite the onset of the coronavirus. The Institute for Supply Management (ISM) reported that its composite index of manufacturing sector activity for March fell to 49.1 after easing to 50.1 in February. A reading of 50.5 had been expected in the Action Economics Forecast Survey. During the last 15 years, there has been a 68% correlation between the composite index and the quarterly change in real GDP.
The new orders index fell to 42.2, its lowest level since March 2009. The production measure also fell sharply to 47.7, down versus the cycle high of 64.2 in January 2018.
Also declining to its lowest point since May 2009 was the employment measure to 43.8. Just nine percent (NSA) of respondents reported higher payrolls while 21% reported a decline. During the last 15 years, there has been 80% correlation between the employment index and the m/m change in factory sector payrolls.
The supplier delivery measure surged to 65.0 from 57.3, indicating the slowest product delivery speeds since June 2018. Holding fairly steady m/m at 46.9 was the inventory index, but that was down from 53.9 in August 2018.
The prices paid index declined sharply to 37.4 (NSA), its lowest point since January 2016. Only 12% of respondents reported higher prices while 37% reported a decline.
Other series in the ISM report indicated weakness. The export order measure fell to 46.6, the lowest point in six months and down from a high of 62.8 in February 2018. The import series fell to an expansion low of 42.1 and the order backlog measure fell to 45.9 from 50.4 twelve months earlier.
The ISM figures are diffusion indexes where a reading above 50 indicates expansion. The figures from the Institute for Supply Management can be found in Haver's USECON database; further detail is found in the SURVEYS database. The expectations number is available in Haver's AS1REPNA database.
| ISM Mfg (SA) | Mar | Feb | Jan | Mar'19 | 2019 | 2018 | 2017 |
|---|---|---|---|---|---|---|---|
| Composite Index | 49.1 | 50.1 | 50.9 | 54.6 | 51.2 | 58.9 | 57.4 |
| New Orders | 42.2 | 49.8 | 52.0 | 55.5 | 51.1 | 61.6 | 62.1 |
| Production | 47.7 | 50.3 | 54.3 | 55.1 | 51.2 | 60.9 | 60.9 |
| Employment | 43.8 | 46.9 | 46.6 | 57.1 | 50.9 | 56.9 | 56.8 |
| Supplier Deliveries | 65.0 | 57.3 | 52.9 | 54.9 | 52.9 | 62.0 | 56.8 |
| Inventories | 46.9 | 46.5 | 48.8 | 50.6 | 49.8 | 52.9 | 50.4 |
| Prices Paid Index (NSA) | 37.4 | 45.9 | 53.3 | 54.3 | 49.1 | 71.7 | 65.0 |
