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ISM Manufacturing: New Orders Remain Robust as Inventories Fall

April 3, 2017

Bottom Line: Manufacturing activity expanded in March, holding near post-crisis highs. The differential between new orders and inventory levels grew as all 18 industries in the survey reported stronger new order growth. Employment in the manufacturing sector grew, and was moderately above the average survey level for the last twelve months. Prices paid, increased from 68.0% to 70.5% this month indicating an increase in the price of raw materials. Overall this report continues the series of stronger survey (or "soft") datapoints since the election nearly 5 months ago and suggests that "hard" data in the manufacturing sector should begin to improve in coming months.

The ISM Manufacturing Index FELL by 0.5 points in March to 57.2%, on-line with market expectations. This indicates that manufacturing activity expanded modestly during the month.

New Orders declined slightly from 65.1% to 64.5%. Meanwhile, Export Orders grew moderately. Production declined sharply from 62.9% to 57.6%. Consequently, Order Backlogs grew sharply. Inventories declined modestly from 51.5% to 49.0%. They are modestly above the average survey level for the last twelve months.

Employment grew sharply from 54.2% to 58.9%, suggesting there will be modest factory job creation in the upcoming payroll employment report. Prices grew modestly.

Quotes from Survey:
"Business conditions continue to improve." (Chemical Products)

"Business outlook is positive." (Computer & Electronic Products)

"Regional business is strong. Hiring qualified team members has improved." (Fabricated Metal Products)

"We had a lot of storm orders, so it really pushed our sales up this month." (Miscellaneous Manufacturing)

"Starting to see some prices creeping up. We are raising our sales prices as well." (Food, Beverage & Tobacco Products)

"Business up 10-15 percent." (Machinery)

"Industry outlook is looking relatively flat currently, and the view for calendar year 2017 looks to be flat as well. Job market has been very good in the region, and finding talent has been challenging." (Transportation Equipment)

"Overall, material inflation is now clearly upon us." (Paper Products)

"Business is strong and looking up." (Furniture & Related Products)

"Opportunities for new business seem more abundant now. Orders and RFQs increasing." (Nonmetallic Mineral Products)

Article by Contingent Macro Advisors