The March Purchasers Manager’s Index moved down 1.5 points month on month, (m/m) to 59.3. This value is an encouraging sign for the manufacturing sector. The index has been greater than 50, (>50 = expansion) for 19 consecutive months. The new orders sub-index scored a 61.9, its tenth month in a row over 60. Overall, the ISM manufacturing index is strong and fundamentals remain favorable as the global economy strengthens and the U.S. dollar depreciates.
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. On a 3 month moving average, (3MMA) basis, the index posted a value 59.7, up 4.8%, 3 months year on year (y/y). When examined on a 12MMA y/y comparison, the index increased by 9.4% y/y.
Table 1 breaks down the detail of the composite index and sub-indexes. The composite index score for March was 59.3. One year ago the composite index was a still very solid 57.2.
Breaking down the sub-indexes for the monthly numbers: Inventory, (not seasonally adjusted) sub-index moved-down 1.2 points m/m to 55.5 in March. ISM notes that suppliers were not able to maintain desired inventory expansion levels consistent with production demands and that broad supplier lead-time extensions and freight uncertainties will continue to impact inventory accounts.
The production sub-index fell 1.0 points to 61.0, the tenth consecutive month that the index has registered over 60. Fourteen industries reported growth in production during March, two noted a decline. The supplier deliveries index decreased 0.5 points to 60.6. Slower deliveries indicate a growing constraint on manufacturing production output in the future. The employment index decreased 2.4 points to 57.3. Further evidence that the job market continues to be strong.
The prices paid sub-index was up 3.9 points m/m to 78.1. The large increase is primarily due the rise in raw material prices. Commodities moving up in price included; aluminum, copper, crude oil, diesel fuel and nickel. New export orders decreased by 4.1 points to 58.7, as new import orders fell 0.8 points to 59.7.
Manufacturing is off to a good start in 2018, the ISM manufacturing report continues to be encouraging. Finding suitable labor is becoming an increasingly difficult challenge for employers. Strong capital spending for machinery, aided by tax cuts is anticipated to continue to increase as a result.
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.