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Economy in Brief

ISM Manufacturing Index Strengthens During March
by Tom Moeller  April 1, 2021

• Factory activity increases to 1983 high.

• Component strength is broad-based.

• Pricing power remains strong.

Factory sector activity remained robust last month. The Institute for Supply Management (ISM) reported that its Composite Index of Manufacturing Sector Activity surged to 64.7 during March after rising to 60.8 in February. It was the highest index level since December 1983. The reading exceeded expectations for 61.0 in the Action Economics Forecast Survey. It was the tenth consecutive month above the break-even level of 50. During the last 15 years, there has been a 49% correlation between the composite index and the quarterly change in real GDP. Before the recession began, there had been a 67% correlation.

The new orders index rose sharply to 68.0, the highest level since January 2004. An improved 45.3% (NSA) of survey respondents reported stronger new orders and a steady six percent reported a decline. The production index also surged to a January 2004 high. A higher 43.0% (NSA) of respondents reported more production while a lessened 8.1% reported less. The supplier deliveries index jumped to 76.6, indicating the slowest order delivery speeds in over 40 years. The inventories index rose to 50.8 indicating a resumption of modest inventory accumulation.

Also strengthening last month was the employment measure to 59.6, a roughly three-year high. It was increased from April's low of 28.2. A strengthened 23.9% (NSA) of respondents reported higher payrolls, the most since June 2019 and a reduced 7.2% reported a decline, down from 46.6% last April.

Pricing power remained strong. The prices paid index eased to 85.6 (NSA) but remained up significantly from last April's low of 35.3. A slightly lessened 71.6% of respondents reported higher prices compared to last April's low of 10%. Reporting price declines were 0.5% of respondents, down from 39.4% in April.

Other series in the ISM report indicated improvement. The order backlog measure surged to 67.5, up from 37.8 last April. The new export order measure eased to 54.5, the lowest level in six months. The import series was little-changed at 56.7 and has been moving sideways since last year's third quarter.

The ISM figures are based on responses from over 400 manufacturing purchasing executives from 20 industries, which correspond to their contribution to GDP in 50 states. These data 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'20 2020 2019 2018
Composite Index 64.7 60.8 58.7 49.7 52.5 51.2 58.9
 New Orders 68.0 64.8 61.1 43.2 54.0 51.2 61.6
 Production 68.1 63.2 60.7 48.4 53.8 51.3 60.9
 Employment 59.6 54.4 52.6 44.6 44.3 50.9 56.9
 Supplier Deliveries 76.6 72.0 68.2 65.0 61.6 52.9 62.0
 Inventories 50.8 49.7 50.8 47.2 48.8 49.9 52.9
Prices Paid Index (NSA) 85.6 86.0 82.1 37.4 54.0 49.1 71.7
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