March 2024 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 a return to expansion in the sector during March. The PMI registered 50.3%, up 2.5 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. Production expanded (+6.2PP, to 54.6%) and prices paid accelerated (+3.3%, to 55.8%) while inventories shrank more slowly (+2.9%, to 48.2%). 

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Concurrent activity in the services sector -- which accounts for 80% of the economy and 90% of employment -- decelerated (-1.2PP, to 51.4%). Order backlogs fell into contraction (-5.5PP, to 44.8%), the increase in prices paid decelerated (-5.2PP, to 53.4%) and slow deliveries declined further (-3.5PP, 45.4%).

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Respondent comments included the following –

Construction. “National business conditions remain strong in the industrial construction market. Labor is still tight across the country for skilled trades positions.”

Paper Products. “As an energy-intensive manufacturer, energy pricing continues to be a concern for our business. The move to electrification has increased demand, and supply is not stable because we’re not in an ideal geography for wind and solar power.”

Wood Products. “Business activity is up. Many manufacturers are anticipating better business in the second quarter and much better in the third quarter. They are reporting that second-quarter bookings are just starting to ramp up.”

 

Changes in S&P Global‘s headline index value for manufacturing dipped -0.3PP, to 51.9, “pointing to a slightly less pronounced improvement at the end of the opening quarter of the year.” Also, the services sector “ticked down to a three-month low of 51.7 in March from 52.3 in February.” Details from S&P Global’s surveys follow --

Manufacturing. Factory output growth hits 22-month high in March.

Key findings:

• Sharper rises in output and employment
• New orders continue to increase, but at softer pace
• Output price inflation quickens for fourth month running

 

Services. Growth of activity sustained at end of first quarter.

Key findings:

• Further rises in output and new orders, but rates of growth ease
• Pace of job creation moderates
• Selling price inflation at eight-month high

 

Commentary by Chris Williamson, S&P Global’s chief business economist --

Manufacturing. “The final reading of the S&P Global Manufacturing PMI signaled a further encouraging improvement in business conditions in March, adding to signs that the US economy looks to have expanded at a solid pace again in the first quarter.

“A key development in recent months has been the broadening-out of the upturn from services to manufacturing, with reviving demand for goods driving the fastest increase in factory production since May 2022. Jobs growth has also picked up as firms boost capacity to meet demand. Rising capex spending has likewise buoyed orders for machinery and equipment, in a further sign of firms gaining confidence in the outlook.

“The upturn is, however, being accompanied by some strengthening of pricing power. Average selling prices charged by producers rose at the fastest rate for 11 months in March as factories passed higher costs on to customers, with the rate of inflation running well above the average recorded prior to the pandemic. Most notable was an especially steep rise in prices charged for consumer goods, which rose at a pace not seen for 16 months, underscoring the likely bumpy path in bringing inflation down to the Fed’s 2% target.”

 

Services. “The US service sector reported a further rise in business activity in March, adding to signs that the economy enjoyed robust growth in the first quarter. Combined with an acceleration of growth in the manufacturing sector, the latest services PMI data point to GDP having risen at an approximate 2% annualized rate in the first three months of the year.

“Confidence in the outlook for the coming year has also lifted higher, which should help to sustain solid growth into the second quarter.

“The sustained upturn is being accompanied by renewed upward price pressures, however, with wage growth in particular driving costs higher. Rising raw material and fuel prices are also adding to cost burdens, which is in turn driving average selling prices for goods and services higher at a rate not seen since July of last year. Both manufacturers and services providers alike are seeing intensifying cost and selling price inflation rates, which is likely to feed through to higher consumer price inflation in the near term.”

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.