March 2017 ISM and Markit Reports

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The Institute for Supply Management’s (ISM) monthly opinion survey showed that the expansion in U.S. manufacturing decelerated slightly during March. The PMI registered 57.2%, down 0.5 percentage points from February. (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. Noteworthy changes included faster growth in employment, input prices (highest index since May 2011) and export orders. 

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The pace of growth in the non-manufacturing sector -- which accounts for 80% of the economy and 90% of employment -- retreated more significantly when dropping by 4.7 percentage points, to 58.9%. NMI sub-indexes gave a mixed message, with rising export and import orders amid decelerating business activity, new orders and employment. 

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All industries we track reported expansion. “Overall, material inflation is now clearly upon us,” wrote one Paper Products respondent. “Growth on [a] number of projects has slowed a little, but revenue projections are steady,” observed a Construction respondent.

Relevant commodities --
* Priced higher: Paper; caustic soda; corrugate (including boxes and packaging); diesel and gasoline; labor (including construction and temporary); lumber -- pine, plywood and spruce.
* Priced lower: None.
* Prices mixed: None.
* In short supply: Labor (including construction and temporary).

ISM’s and IHS Markit’s surveys were directionally consistent, with both pairs exhibiting decelerating growth. Markit’s surveys were considerably less upbeat than ISM’s.

Commenting on the data, Chris Williamson, Markit’s chief business economist said:

Manufacturing -- “The post-election resurgence of the manufacturing sector seen late last year is showing signs of losing steam. Output growth slowed to a six-month low in March, optimism about the outlook has waned and hiring has slowed accordingly.

“While the survey data suggest that the goods producing sector enjoyed a relatively good first quarter on the whole, the loss of momentum seen in February and March bodes ill for the second quarter.

“The survey data have acted as a reliable advance guide to official data in the past, and in March indicate a slowing of output growth to an annualized rate of around 2%. The survey’s employment index is meanwhile consistent with official manufacturing payroll numbers falling slightly.

“If the activity numbers send a dovish signal to policymakers, the survey’s price indices favor the hawks. Inflationary pressures have risen to a two and a half year high, despite the oil price easing during the month.”

Services -- “The March [manufacturing and service] PMI numbers add to the picture of a relatively modest opening quarter to 2017 for the U.S. economy. The surveys of manufacturing and services are running at levels consistent with GDP expanding by 1.7% in the first quarter.

“Growth of business activity appears to have peaked in January, sliding to a six-month low in March.

“The loss of momentum is linked to weaker inflows of new work, with the surveys providing some evidence that demand is being dented in part by higher prices.

“However, business confidence, although up in February, has failed to regain the levels seen at the start of the year, suggesting a less ebullient mood has developed among companies than seen in the immediate aftermath of the presidential election.

“This lower degree of business optimism has translated into weaker hiring, with the March surveys indicating the smallest net gain in private sector employment since last October.”

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.