March 2023 ISM and S&P Global Surveys

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The Institute for Supply Management‘s (ISM) monthly sentiment survey of U.S. manufacturers reflected faster erosion in the sector during March 2023. The PMI registered 46.3%, down 1.4 percentage points (PP) from February’s reading. (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. Subindexes with the largest changes included new orders (-2.7PP), inventories (-2.6PP), and exports (-2.3PP). 

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Concurrent activity in the services sector -- which accounts for 80% of the economy and 90% of employment -- expanded at a significantly slower pace (-3.9PP, to 51.2%). Exports (-18.0PP), new orders (-10.4PP), and imports (-9.0PP) exhibited the largest changes.

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Of the industries we track, Construction and Ag & Forestry expanded while the rest contracted. Respondent comments included the following:

Construction. “Sales continue to increase even as interest rates moderately increase. Most suppliers feel their supply chains are back to normal, with inventories climbing and delivery times improving. (We) fear this will have a detrimental effect in a six- to 12-month time frame.”

 

Changes in S&P Global‘s survey headline results were mixed relative to ISM’s. Both manufacturing reports showed contraction, and both services reports exhibited expansion; however, both S&P Global reports showed rising PMI values whereas both ISM reports exhibited falling PMIs. Details from S&P Global’s surveys follow --

Manufacturing. Manufacturing decline eases amid renewed rise in output in March.

Key findings:
* Fractional upturn in production as decline in new orders eases
* Greatest improvement in input delivery times on record
* Cost burdens rise at slowest rate since July 2020

 

Services. Renewed rise in service sector new orders, but selling price inflation quickens again.

Key findings:
* Fastest expansion in output since June 2022
* Return to new business growth
* Cost pressures ease, while output charges rise at sharper rate

 

Commentary by Siân Jones, S&P Global’s chief business economist:

Manufacturing. “The US manufacturing sector continued to signal concerning trends during March. Although output rose for the first time since last October, growth was fractional, and largely supported by ramping up production following an unprecedented reduction in supply chain pressures. The timely delivery of inputs allowed firms to work through backlogs, but sparse demand amid pressure on customer spending due to higher interest rates and inflation spoke to challenges ahead for goods producers if there is little change in domestic and international client appetite.

“Weak demand for inputs resulted in some relief for manufacturers as input cost inflation slowed again. A paucity of new orders sparked efforts to entice customers, however, as selling price inflation eased notably to the weakest since October 2020. Nonetheless, inflationary concerns weighed on business confidence once again amid pressure on margins.

“Encouragingly, firms were able to expand factory workforce capacity again, albeit at only a marginal pace, as skilled candidates for long-held vacancies were found.”

 

Services. “Business activity across the service sector expanded at a faster pace in March, as a return to new order growth offered a tonic to the US economy, which saw the fastest rise in private sector output since last June. Improvements in customer spending across the service economy counteracted another fall in manufacturing sales.

“Greater service sector demand and increased pressure on capacity spurred another round of job creation, with the rate of employment growth quickening slightly to a six-month high.

“Concerns regarding the impact of inflation and higher interest rates on customer spending remained apparent, however. Optimism at goods producers and service providers dipped since February amid elevated cost pressures. Nonetheless, selling price inflation accelerated again due to more accommodative demand conditions. A sharper rise in charges contrasted with the trend for input prices, which increased at the second slowest pace since October 2020.”

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.