The Institute for Supply Management’s manufacturing index for March fell 0.5 points to 57.2 month on month, a little lower than analyst expectations. The production sub-index was the main reason for the decline, falling from 62.9 to 57.6. The employment sub-index picked-up 4.7 points to settle at 58.9, which suggest a very strong gain of manufacturing jobs in March.
The ISM manufacturing index is based on surveys of 400 purchasing managers in 20 industries. The survey is a diffusion index calculated as a percent of responses. A value of 50 is neutral, while less than 50 is contracting and greater than 50 is expansionary,
Figure 1 shows the history of the ISM manufacturing index from 2003 to present. The index is solidly in the expansion region despite the slight setback in March. On a 3 month moving average basis the index posted a value 57.0, up 14.3%, 3 months year on year. Supporting the strong ISM manufacturing report is the recently released NAM Manufacturers’ Outlook Survey that showed that 93.3% of manufacturers have a positive outlook about future business prospects up from 57% a year ago.
Table 1 breaks down the detail of the composite index and sub-indexes. Momentum was positive in every single category as was the three month moving average (3MMA) and the 12MMA. The production sub-index was disappointing, falling 5.3 points in March. The good news is that 17 industries reported growth in production vs.14 in February and 10 in January, while no industry recorded a production decline in March. The March’s inventory posting was 49.0, down from 51.5 last month. The difference between new orders and inventories which is considered a proxy for future production strengthened from 13.6 to 15.5. This points toward improvement in factory production for the coming quarter. Overall the latest ISM manufacturing report indicates the likelihood of continued strengthening in US manufacturing.
At Gerdau we closely monitor the ISM manufacturing index since it is an excellent barometer of the present strength as well as a window on the likely short-run future of US manufacturing.