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U.S. Manufacturing Activity Breaks Losing Streak; Expands for First Time in 16 Months

Posted by IndustryNet on Monday, April 1, 2024

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U.S. manufacturing activity expanded for the first time in more than a year, according to the latest survey of purchasing executives conducted by the Institute for Supply Management released April 1st.

U.S. Manufacturing Activity Trends

Following straight sixteen months of contraction, activity in the U.S. manufacturing sector rebounded into expansion, advancing 2.5% to a reading of 50.3%. Led by an increase in demand and output, this is the first time the sector has signaled expansion since September of 2022.  Let’s take a look at some key trends from the report:

Demand and Production Uptick: The New Orders Index returned to expansion at 51.4%, and the Production Index saw a significant rise to 54.6%, reflecting strengthened demand and output.

Employment and Inventories: While the Employment Index showed a slight improvement, it remained in contraction at 47.4%. The Inventories Index also improved but continued to contract, indicating a cautious approach to stock levels.

Price Fluctuations: The Prices Index increased to 55.8%, suggesting a moderate expansion and highlighting ongoing instability in commodity-driven costs.

Other Key Metrics from the ISM report

Let's take a look at some other key metrics from the report:

Supplier Deliveries: The Supplier Deliveries Index registered at 50.8%, indicating slower deliveries due to increased demand.

Backlog of Orders: The Backlog of Orders Index increased to 52.6%, suggesting manufacturers are experiencing a higher volume of unfulfilled orders.

New Export Orders and Imports: The New Export Orders Index grew to 53.7%, showing a stronger demand from overseas. The Imports Index was at 48.1%, indicating a contraction in raw materials sourced from abroad. Both indexes have hit their highest level since July 2022.

Customers’ Inventories: The Customers’ Inventories Index stood at 39.9%, which is considered too low and might lead to increased production in the future.

These metrics provide a comprehensive view of the manufacturing sector’s performance and can be used to anticipate future trends. Remember, a reading above 50% indicates that the metric is expanding, while a reading below 50% indicates contraction.

Insights from the ISM

Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management® Manufacturing Business Survey Committee, said that the manufacturing sector is showing signs of recovery, with demand and production increasing, although suppliers are facing challenges due to their raw material supply chains.

“The U.S. manufacturing sector moved into expansion for the first time since September 2022. Demand was positive, output strengthened and inputs remained accommodative,” Fiore said. “Demand remains at the early stages of recovery, with clear signs of improving conditions. Production execution surged compared to January and February, as panelists’ companies reenter expansion. Suppliers continue to have capacity but are showing signs of struggling, due in large part to their raw material supply chains.”

Nine of the eighteen manufacturing industries reported expansion in March, with textile mills, nonmetallic mineral products, paper products and petroleum & coal products leading growth.

Related: How Outsourced Prospecting Can Help Your Manufacturing Business Survive an Uncertain Economy

What Manufacturers Are Saying About Business Conditions

Manufacturers expressed a much rosier outlook in the comments section of the ISM report in March. Many pointed to supply chain stabilization, while others experienced an uptick in demand. While concerns loomed about the upcoming general election, business outlook seemed largely optimistic.

Said one respondent in the chemicals sector, “Performance continues to defy projections of a downturn in activity. Demand remains strong, and the pipeline for orders is robust.”

Strong optimism continued with this hopeful comment from a respondent in the fabricated metals sector “Business is still strong — we are meeting and exceeding our forecasts. So far, we’re not hearing anything negative with our customers as far as ongoing business is concerned — it’s the same for raw material suppliers, nothing negative.”

Meanwhile, energy pricing played a part in this paper products executive’s assessment of current business conditions, “As an energy-intensive manufacturer, energy pricing continues to be a concern for our business. The move to electrification has increased demand, and supply is not stable because we’re not in an ideal geography for wind and solar power.”

The upcoming general election weighed on this petroleum products company’s outlook. “The potential aftermaths of the presidential election are beginning to impact conversations and negotiations of long-term agreements/contract.”

Meanwhile, a rise in demand for some sectors is putting pressure on manufacturers to ramp up production, as seen in this comment from a respondent in the transportation equipment sector: “Expecting to see orders and production pick up for the second quarter. Suppliers are working with us to help drive costs down, which will help improve the margin for the rest of the year and deliver growth in 2025

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