March 2015 ISM and Markit Reports

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The Institute for Supply Management’s (ISM) monthly opinion survey showed that growth of economic activity in the U.S. manufacturing sector slowed again in March. The PMI retreated from February’s 52.9% to 51.5% in March -- below expectations of 52.5% and its lowest reading since May 2013. (50% is the breakpoint between contraction and expansion.) ISM’s manufacturing survey represents under 10% of U.S. employment and about 20% of the overall economy. The key new-orders sub-index slipped again but remained in expansion.

“Comments from the panel refer to continuing challenges from the West Coast port issue,” said Bradley Holcomb, chair of ISM’s Manufacturing Business Survey Committee, “lower oil prices having both positive and negative impacts depending upon the industry, residual effects of the harsh winter, higher costs of healthcare premiums, and challenges associated with the stronger dollar on international business.” 

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Wood Products expanded in March thanks to new and backlogged orders. Paper Products also expanded, with support among new orders, production and employment. “March business is improving over Jan-Feb,” wrote one Paper Products respondent, “thawing out of this crazy winter.”

The pace of growth in the non-manufacturing sector -- which accounts for 80% of the economy and 90% of employment -- edged lower in March. The NMI registered 56.5% (56.7% expected), 0.4 percentage point below February’s 56.9%. The business activity sub-index declined while new orders marginally improved -- with both remaining in territories associated with moderate expansion; also, exports and imports both jumped. “The majority of respondents’ comments reflect stability and are mostly positive about business conditions and the overall economy.” said Anthony Nieves, chair of ISM’s Non-Manufacturing Business Survey Committee. 

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All three service industries we track reported expansion in March. The new orders sub-index was the most consistent source of strength.

Relevant commodities up in price included gasoline, paper. Oil and lumber were down in price. Some reported fuel (both gasoline and diesel) as cheaper, others as more expensive. No relevant commodities were in short supply.

ISM’s and Markit’s surveys diverged markedly in March. Whereas ISM’s PMI and NMI both reflected decelerating growth, Markit’s U.S. Manufacturing and Services PMIs both showed “sharp” improvements.

Comments from Tim Moore, Markit’s senior economist, are presented below:

Manufacturing -- “The U.S. manufacturing sector is clearly regaining momentum after a slow start to 2015. Stronger new order growth and rising input buying in March should help set the scene for improving production trends into the second quarter of the year. Moreover, job creation has remained resilient in recent months, and falling raw material costs continue to support operating margins.

“Improving domestic economic conditions remain the key growth driver for U.S. manufacturers, with consumer goods producers recording an especially robust upturn in March.

“Output growth was reasonably broad-based across the manufacturing sector in March, although some investment goods producers cited weaker spending patterns among clients in the energy sector. Meanwhile, export sales were again a drag on overall new business growth, in part reflecting the stronger dollar exchange rate.”

Services -- “The latest survey highlights a strong underlying pace of US economic growth moving into the second quarter of 2015. New business trends across the service sector have picked up especially sharply from the lows seen earlier in the year, and job hiring has strengthened as a result.

“However, service providers’ business confidence dipped in March and remained well below the peaks recorded in 2014, weighed down in part by the prospect of a Fed rate rise later this year. Meanwhile, subdued input price pressures were reported in March, although the overall rate of cost inflation has ticked up slightly from a recent five-year low.”

The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.