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Optimism in  ISM Index

Optimism in ISM Index

April 1, 2024
"Despite ongoing supply disruptions, increased industrial activity has not led to longer lead times," said Oxford Economics.

ISM's manufacturing PMI came in at 50.3% in March, which was up 2.5 percentage points from the 47.8% recorded in February. T

The overall economy expanded for the 47th month after one month of contraction in April 2020.

In specific categories:

  • The Suppliers Deliveries index was 49.9% which is 0.2 percentage point lower than the 50.1 percent recorded in February. 
  • The New Orders Index moved back into expansion territory at 51.4%, 2.2 percentage points higher than the 49.2% recorded in February.
  • The Production Index registered 54.6% which is 6.2 percentage points higher than February's figure of 48.4%. 
  • The Prices Index registered 55.8 %, up 3.3 percentage points compared to the reading of 52.5% in February. 
  • The Backlog of Orders Index registered 46.3%, the same reading as in February. 
  • The Employment Index registered 47.4%, up 1.5 percentage points from February's figure of 45.9 percent.

Matthew Martin, US Economist at Oxford Economics provides the following analysis:

There was plenty to like in the March ISM manufacturing report, with the headline index breaking above the neutral threshold for the first time since September 2022, signaling that February's decline was a bump on the sector's path to recovery. The increase means the index is now at a level consistent with our outlook for the economy to expand above 2% annualized Q1 2024.

The upside surprise was driven largely due to a surge in production levels and new orders, matching the general positive commentary displayed in prior reports. Comments from panelists in March paint a rosy picture, with strong demand and expectations for improvement. Low customer inventory levels will support future production levels.

Despite ongoing supply disruptions, increased industrial activity has not led to longer lead times, with the supplier deliveries index edging lower and pointing to modestly faster delivery times. Firms continue to pair back headcount through layoffs, even as the production outlook improves. The employment index is consistent with declines in manufacturing employment as measured by the Bureau of Labor Statistics.

The one blemish from the March report was the jump in the prices index, which signaled raw material prices rose at their fastest pace since July 2022, with volatile commodity prices as the largest factor. With the backlog of orders low and supply constraints seemingly undisturbed, though, increased demand should not lead to a sustained surge in prices, as seen during the pandemic.