The Institute for Supply Management (ISM) reported that manufacturing activity continued to expand solidly in March, even as it pulled back from the best reading since May 2004 in February. The ISM Manufacturing Purchasing Managers’ Index declined from 60.8 in February to 59.3 in March, but the data continue to indicate strength in the sector overall. Indeed, the indices for new orders (down from 64.2 to 61.9) and production (down from 62.0 to 61.0) have exceeded 60—a threshold suggesting robust expansions for both measures—since at least June 2017. Exports (down from 62.8 to 58.7) and employment (down from 59.7 to 57.3) growth also remain quite healthy despite some deceleration in the March figures. Exports, for instance, had expanded at the fastest rate since April 2011 in February, with international sales helping to fuel stronger overall demand.
The sample comments tended to echo those findings, with healthy gains in demand, production and hiring and a very optimistic outlook for the coming months. Several respondents cited supply and hiring constraints as the economy has strengthened and the labor market has tightened, with others noting accelerating costs.
Indeed, prices for raw materials have remained highly elevated (up from 74.2 to 78.1), with the measure at a level not seen since April 2011. More than 57 percent of manufacturing respondents said their costs had risen in March, with just 0.8 percent suggesting they decreased. This reflects a rebound in some commodity costs, even as overall pricing pressures continue to be largely under control, at least for now.
In other news, inventories (down from 56.7 to 55.5) expanded in March for the third straight month despite pulling back from February’s highest point since March 2010. More than anything, the recent uptick in inventories is consistent with the healthy growth in overall production.
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