ISM manufacturing and non-manufacturing gauges ease back in March

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Two separate gauges of U.S. activity, measured across manufacturing and non-manufacturing sectors showed a moderation in March after posting steady gains previously.

The Institute of Supply Management’s manufacturing PMI was registered at 57.2 in March, down from 57.7 in February while the non-manufacturing PMI was registered at 55.2, down from 57.6 previously.

Both the gauges of economic activity had seen strong gains since late last year as businesses were optimistic on the promises made by the Trump administration. The ISM non-manufacturing and manufacturing PMI both surged to the highest levels in more than two years in the month of February.

ISM manufacturing PMI at second highest levels since two and half years

That narrative seems to have changed with the latest ISM data. Anthony Nieves, who oversees the ISM survey, was commenting on the data noting that the post-election euphoria was overshadowed by the uncertainty over the trade outlook, health care, and the immigration policies.

U.S. ISM Manufacturing PMI (March 2017)
U.S. ISM Manufacturing PMI (March 2017)

The ISM manufacturing PMI report, despite coming out weaker on the headline still showed strong readings in the sub-indexes signaling that growth in the U.S. manufacturing sector was still expanding.

Bradley Halcomb from ISM said that the continued pace of expansion was due to the prospects of lower tax rates and reduced encumbrances.

The production index slipped to 57.6 in March from 62.9 in February while the new orders index slipped to 64.5 from 65.1. On the employment front, the index rose to 58.9 from 54.2 while the prices paid index jumped to 70.5 in March, compared to 68.0 in February.

Despite some downbeat numbers, the ISM manufacturing survey was seen at the second highest levels in nearly two and a half years with the reading of 57.2 signaling broad-based growth in the sector with 17 out of the 18 industries signaling growth.

The employment index in the manufacturing PMI rose to 58.9, accelerating from 54.2 registered in February. The employment data for March showed the strongest monthly reading since mid-2011

ISM non-manufacturing PMI in March expands at the slowest pace since before elections

The non-manufacturing PMI survey index was weaker across the board signaling the slowest pace of expansion seen since the U.S. elections in November 2016. Still, the services activity continued to expand, with the reading above 50. 15 out of the 18 industries surveyed reported growth with new orders and business activity expanding at a slower than expected pace.

ISM non-manufacturing PMI (March 2017)
ISM non-manufacturing PMI (March 2017)

In a separate report, the manufacturing PMI data released by Markit showed that the U.S. manufacturing growth slowed to a 6-month low in March led by softer output and weaker pace of new orders growth. The Markit’s manufacturing PMI also pointed to the slower pace of rising in the payrolls from the manufacturing sector.

Despite the downbeat data, analysts are not reading too much into just one month’s data. Latest economic reports suggested that the U.S. economy was continuing to expand at a strong pace.

As of April 5th, the Atlanta Fed’s GDP Now model is forecasting a first-quarter GDP growth rate of 1.2% for the quarter. Previously the U.S. gross domestic product expanded at a seasonally adjusted annual rate of 2.1% in the final three months of 2016.

The U.S. labor market was also seen to be a firm footing as the latest private payrolls data for March, released by ADP/Moody’s showed that private firms added 264k jobs in March, which was higher than the forecast of 184k, but February’s numbers were revised down to 245k from the originally reported headline number of 298k.

The preliminary estimates of the first quarter GDP will be released on April 28th.


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