ISM Manufacturing: Declines As Regionals Suggested, Level Still Strong

Bottom Line: New orders fell, pushing the headline ISM index down, mostly as expected in March. The overall level remains strong, though, with 17 of 18 industries reporting growth and order backlogs holding near 13-month highs. Anecdotally some industries expressed cocerns about tariffs in their comments included with the survey. There were reports of some "panic buying" in metals markets and prices paid hit levels seen only very briefy in 2011. Employment ticked down modestly, which is a slight negative relative to consensus expectations for manufacturing jobs in Friday's payroll report. The ISM Manufacturing Index FELL by 1.5 points in March to 59.3%, compared with market expectations for a smaller decline to a 59.7% This indicates that manufacturing activity expanded modestly during the month.

• New Orders declined modestly from 64.2% to 61.9%.
• Meanwhile, Export Orders declined moderately. Production declined slightly from 62.0% to 61.0%.
• Consequently, Order Backlogs grew sharply. Inventories declined modestly from 56.7% to 55.5%. They are modestly above the average survey level for the last twelve months.
• Employment declined modestly from 59.7% to 57.3%, suggesting there will be modest factory job creation in the upcoming payroll employment report.
• Prices grew moderately.

Quotes from Survey:

• “Supply constraints, extended lead times, capacity constraints [and the like], particularly in the electronics components markets, continue to frustrate and drain needed resources, have delayed production schedules and, in some cases, caused missed or delayed sales opportunities.“ (Computer & Electronic Products)
• “International demand is strong for our products in all regions. We are seeing constraints in multiple chemical supply chains due to increased global demand. We are concerned about the impact of tariff and trade wars on demand, but at this time, [there are] no signals that global demand is slowing.“ (Chemical Products)
• “Production targets continue to be a struggle due to shortages of globally sourced components. Many subtier components are in short supply for multiple OEMs.“ (Transportation Equipment)
• “In the U.S., we continue to struggle with finding carriers and drivers for shipments.“ (Food, Beverage & Tobacco Products)
• “Much concern in the industry regarding the steel and aluminum tariffs recently [imposed]. This is causing panic buying, driving the near-term prices higher and [leading to] inventory shortages for non-contract customers.“ (Machinery)
• “New tariffs are causing concern across the supply chain. Full impact will take a few weeks to reveal itself.“ (Miscellaneous Manufacturing)
• “Significant price increases in the steel commodity due to 232 [the tariffs]. The price increases will begin to impact our company’s performance.“ (Primary Metals)
• “Overall, incoming orders are picking up, and supplier pricing is increasing in some commodities.“ (Textile Mills)
• “Hiring continues to slowly increase from February into March and capital spending was allowed a small increase. Oil market conditions have improved and continue to stabilize.“ (Petroleum & Coal Products)