The Institute for Supply Management’s (ISM) purchasing managers’ index (PMI) declined unexpectedly from 54.2 in February to 51.3 in March. The composite index was predicted to show a modest increase in manufacturing activity, much as I wrote in this morning’s Monday Economic Report and consistent with similar data from Markit. Instead, it moved lower on a deceleration of new orders and production.
The sample comments provide some context for this. As one printing manufacturer wrote, “Things seem slightly better than last year, but still not great.” This sentiment is one that we have noted before. While there has been progress from the pullback in activity observed late last year, the economy has still not seen the strength that it had at the beginning of 2012. Governmental policies have not helped, with respondent comments specifically mentioning the across-the-board spending cuts, slowing medical reimbursements from Medicare, and continuing regulatory uncertainties.
Of course, there were also those who noted “brisk” business, including those answering the survey from the automotive, furniture, and wood products sectors.
Looking specifically at the subcomponents of the ISM report, the index for new orders dropped from 57.8 to 51.8, indicating a fairly significant easing for the month of March. At the same time, sales have risen for three straight months, helping to justify the “slightly better than last year” comment discussed above.
There was also good news on the trade front, with the new export orders index rising from 53.5 to 56.0. This suggests that improving economies worldwide – outside of Europe – have helped increase manufacturers’ sales overseas. We should learn more about this on Friday with the release of official trade data from the Census Bureau. (continue reading…)