March 2016 ISM and Markit Reports

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The Institute for Supply Management’s (ISM) monthly opinion survey showed that U.S. manufacturing popped back into expansion during March. The PMI registered 51.8%, an increase of 2.3 percentage points from the February reading of 49.5%. (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. Changes to key internal sub-indexes included a pick-up in new orders and production, and increasing input prices. 

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Wood Products was unchanged. Paper Products expanded as more new orders and production apparently outweighed decreases in employment, backlogged and new export orders, and imports.

The pace of growth in the non-manufacturing sector -- which accounts for 80% of the economy and 90% of employment -- gained a bit of ground in March. The NMI registered 54.5%, 1.1 percentage points higher than the February reading of 53.4%. Except for backlogged orders and imports, all sub-index values were higher in March than February. 

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All three service sectors we track reported no change in overall activity.

Relevant commodities --
* Priced higher: Labor; lumber products; paper.
* Priced lower: Corrugate.
* Prices mixed: Fuel (gasoline and diesel); labor.
* In short supply: Labor.

ISM’s and Markit’s surveys were in general agreement during March insofar as the headlines of both pairs showed expansion, although commentary in the Markit surveys paints a somewhat darker outlook than is the case for ISM.

Comments from Markit are presented below:

Manufacturing -- “March’s survey highlights sustained weakness across the U.S. manufacturing sector, meaning that overall growth through 1Q slowed to its lowest since late-2012. Subdued client spending patterns within the energy sector, ongoing pressure from the strong dollar, and general uncertainty about the business outlook were cited as factors weighing on new order flows in March.

“Meanwhile, price discounting strategies resulted in the first back-to-back drop in factory gate charges for around 3½ years, suggesting another squeeze on margins despite lower materials costs across the manufacturing sector” (Tim Moore, senior economist).

Services -- “The welcome news of sustained robust hiring in March, as indicated by both the PMI surveys and non-farm payroll numbers, masks a more worrying picture of a further slowing in economic growth so far this year.

“The survey data, which have historically provided a reliable guide to official GDP numbers, suggest the annualized pace of economic growth weakened to 0.7% in 1Q.

“Demand is growing at the slowest rate since late-2009 and, with business optimism also sliding to its weakest since the recession, firms clearly expect worse to come. Firms are worried about a potential weakening of demand both at home and abroad in the face of various headwinds. As such, the data support the cautious approach to policy tightening currently advocated by Fed Chair Janet Yellen” (Chris Williamson, chief economist).

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.