Manufacturing Contracts but Overall Economy Grew: ISM

Economic activity in the manufacturing sector contracted in March, but the overall economy grew for the 131st consecutive month, according to a report issued on April 1 from ISM.

The March PMI registered 49.1%, down 1 percentage point from the February reading of 50.1%.

“The coronavirus pandemic and shocks in global energy markets have impacted all manufacturing sectors,” said Timothy R. Fiore, Chair of ISM.

Among the six big industry sectors, Food, Beverage & Tobacco Products remains strongest, followed by Chemical Products, which in addition to the pharmaceutical component, is a significant contributor to the Food, Beverage & Tobacco Products Industry and beneficiary of low energy and feedstock prices. Transportation Equipment and Petroleum & Coal Products are the weakest sectors. “Sentiment regarding near-term growth this month is strongly negative, by a 2-to-1 ratio,” says Fiore.

Index readings are as follows:

• The New Orders Index registered 42.2%, a decrease of 7.6 percentage points from the February reading of 49.8%.
• The Production Index registered 47.7%, down 2.6 percentage points compared to the February reading of 50.3%.
• The Backlog of Orders Index registered 45.9%, a decrease of 4.4 percentage points compared to the February reading of 50.3%.
• The Employment Index registered 43.8%, a decrease of 3.1 percentage points from the February reading of 46.9%.
• The Supplier Deliveries Index registered 65%, up 7.7 percentage points from the February reading of 57.3% problems.
• The Inventories Index registered 46.9%, 0.4 percentage point higher than the February reading of 46.5%.
• The Prices Index registered 37.4%, down 8.5 percentage points compared to the February reading of 45.9%.
• The New Export Orders Index registered 46.6%, a decrease of 4.6 percentage points compared to the February reading of 51.2%.
• The Imports Index registered 42.1%, a 0.5-percentage point decrease from the February reading of 42.6%.

“Comments from the panel were negative regarding the near-term outlook, with sentiment clearly impacted by the coronavirus (COVID-19) pandemic and energy market volatility,” Fiore.

What Respondents are Saying

-- “COVID-19 is impacting China’s raw material supply chain. We are now seeing revenue impact in that region. Our operations team is reviewing plans for the spread of the virus.” (Computer & Electronic Products)

--“The two main issues affecting our business [are] COVID-19 and the oil-price war. We are in daily discussions and meeting constantly, updating tracking logs to document high-risk concerns.” (Chemical Products)

-- “COVID-19 impact has extended to Europe and North America. The virus escalation is affecting our purchasing and logistics operations. We have incurred air-shipment and production interruptions due to shortages of raw materials and components.” (Transportation Equipment)

-- “We are experiencing a record number of orders due to COVID-19.” (Food, Beverage & Tobacco Products)

-- “World demand for petroleum products is declining, while supply is ramping up. We have lost supply chain visibility to certain locations.” (Petroleum & Coal Products)

 --“COVID-19’s spread in the U.S. may start impacting our domestic business. As for Asian suppliers, they are starting to get back up to speed.” (Fabricated Metal Products)

--  “COVID-19 has caused a 30% reduction in productivity in our factory.” (Machinery)

--“A big part of our business is hospitality, and we are seeing demand drop and an increase in cancellations.” (Nonmetallic Mineral Products)

-- “Volumes are down 4.3%, and some areas of the supply chain are being affected by the coronavirus.” (Furniture & Related Products)