Manufacturing Contracts Again Says ISM

Manufacturing Contracts Again, Says ISM

April 3, 2023
"Q1 was the worst quarter for the manufacturing sector since the depths of the pandemic," notes Oren Klachkin, at Oxford Economics

For the fifth consecutive month, economic activity in the manufacturing sector contracted in March, as following a 28-month period of growth,  according to the ISM's latest report released on April 3. The March Manufacturing PMI; registered 46.3%, 1.4 percentage points lower than the 47.7% recorded in February.

Oren Klachkin, lead US economist at Oxford Economics said that he expects the sector to have its "worst year since the global financial crisis – aside from the precipitous fall at the start of the pandemic – as weak demand and tighter credit conditions cause activity to contract. Subsectors for which the business sector is the end customer will struggle the most since that’s the area of the economy we think is most vulnerable to the approaching challenges." Analyzing the demand the components of the reports, "weren't encouraging as production decreased for a fourth consecutive month, new orders continued to fall, and export orders declined for an eighth straight month. Weaker activity cooled inflation pressures, with the price index showing another drop in prices. The employment index fell to its lowest level since before the pandemic, and panelists said they were less willing to hire amid concerns about the growth outlook. Supplier deliveries accelerated while inventories fell. Q1 was the worst quarter for the manufacturing sector since the depths of the pandemic."Specific indexes are as follows: 

  • The New Orders Index remained in contraction territory at 44.3%, 2.7 percentage points lower than the figure of 47% recorded in February.
  • The Production Index reading of 47.8% is a 0.5-percentage point increase compared to February’s figure of 47.3%.
  • The Prices Index registered 49.2%, down 2.1 percentage points compared to the February figure of 51.3%.
  • The Backlog of Orders Index registered 43.9%, 1.2 percentage points lower than the February reading of 45.1%.
  • The Employment Index continued in contraction territory, registering 46.9%, down 2.2 percentage points from February’s reading of 49.1%.
  • The Supplier Deliveries Index figure of 44.8% is 0.4 percentage point lower than the 45.2% recorded in February; this is the index’s lowest reading since March 2009 (43.2%).
  • The Inventories Index dropped into contraction at 47.5%, 2.6 percentage points lower than the February reading of 50.1%.
  • The New Export Orders Index reading of 47.6% is 2.3 percentage points lower than February’s figure of 49.9%.
  • The Imports Index continued in contraction territory at 47.9%, 2 percentage points below the 49.9% reported in February.

Some comments from survey respondents include.

"Orders and production are fairly flat month over month. Lead times have stabilized in most areas, so looking at reducing commitments on new orders, except for a few strategic electronic buys with lead times that are still too long.” [Computer & Electronic Products]

“Sales a bit down, and budgets being cut with a greater emphasis on savings.” [Chemical Products]

“Business is doing generally well, with input costs falling in some areas and rising in others.” [Food, Beverage & Tobacco Products]

“Sales are slowing at an increasing rate, which is allowing us to burn through back orders at a faster-than-expected pace.” [Transportation Equipment]

“Lead times are still improving, but prices continue to face inflationary pressures. Prices of steel and steel products are going up some. Hydraulic components are still facing extended lead times. We are increasing inventory levels of imports due to global uncertainty from the ongoing war in Ukraine and threats from China.” [Machinery]

“Overall, things feel more stable in the first quarter 2023 than they did throughout 2021-22. Customer demand is — as expected — growing well, and the overall supply environment is far better than the previous two years. This is not to say there are not challenges; there absolutely are. However, there are fewer issues cropping up each week, and supply challenges are generally more like the ‘typical’ issues we experienced before the pandemic. We are closely monitoring the global banking situation, but no impacts have been experienced or are expected at this time. Ongoing tensions between the U.S. and China are another issue to watch.” [Miscellaneous Manufacturing]