After edging up a third of a percent in February, U.S. manufacturing activity contracted 1.4% in March, posting its fifth straight month of contraction and hitting a level not seen since May 2020, according to the Institute for Supply Management.
The ISM reports its index of manufacturing activity declined 1.4% to a reading of 46.3%.
According to the report, demand sank further in March after improving slightly in February, declining 2.7% to a reading of 44.3%. Output improved slightly, with the Production Index advancing 0.5%, but still in contraction territory at 47.8%. The Employment index moved down 2.2% to a reading of 49.1%.
Said Timothy Fiore, Chairman of the ISM. “The U.S. manufacturing sector contracted again, with the Manufacturing PMI® declining compared to the previous month. With Business Survey Committee panelists reporting softening new order rates over the previous 10 months, the March composite index reading reflects companies continuing to slow outputs to better match demand for the first half of 2023 and prepare for growth in the late summer/early fall period.”
Meanwhile, prices, which had rebounded into expansion in February, sank 2.1% into a contractionary reading of 49.2% in March.
Fiore further noted sluggishness in the sector continued to show some signs of improvement, when examined through the lens of manufacturing GDP: “Seventy percent of manufacturing gross domestic product (GDP) is contracting,” Fiore said, “down from 82 percent in February. However, more industries contracted strongly; the proportion of manufacturing GDP with a composite PMI® calculation at or below 45 percent — a good barometer of overall manufacturing sluggishness — was 25 percent in March, compared to 10 percent in February, 26 percent in January and 35 percent in December 2022.”
What Manufacturers Are Saying About Business Conditions
Comments from manufacturers were mixed, reflecting a general downturn in demand for some sectors, while others expressed heightened new orders, clouded by lingering supply chain and inflationary issues.
One executive in the fabricated metals sector reported, “Overall, (our) first quarter is going better than planned, with sales increases of about 7 percent versus a budget of 4.5 percent. However, sales volume is pulling down our automotive original equipment manufacturer (OEM) side, which is the majority of our business. We believe the second quarter will be hard but are holding to our outlook.”
Another in the primary metals sector stated, “Overall, business continues to remain strong. We are still experiencing supply chain issues on several indirect supplies.”
One panelist in the miscellaneous manufacturing sector provided this overview, “Overall, things feel more stable in the first quarter 2023 than they did throughout 2021-22. Customer demand is — as expected — growing well, and the overall supply environment is far better than the previous two years. This is not to say there are not challenges; there absolutely are. However, there are fewer issues cropping up each week, and supply challenges are generally more like the ‘typical’ issues we experienced before the pandemic. We are closely monitoring the global banking situation, but no impacts have been experienced or are expected at this time. Ongoing tensions between the U.S. and China are another issue to watch.”
While another in the electrical equipment sector had this to say, “New orders are starting to soften and supplier deliveries are improving slightly. This is allowing us to reduce (our) backlog and build a buffer in some categories. The supply chain disruption — particularly in electronics — is still significant compared to pre-pandemic conditions.”
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