The headline read on ISM manufacturing fell back into contraction territory in March, but at 49.1, it surely understates what’s coming amid the near total economic lockdown being implemented across the country.
The forecast range was 35 to 48.5 from 73 economists, so, officially, 49.1 topped even the most optimistic estimates.
Meanwhile, the final read on IHS Markit’s gauge for March was revised lower to 48.5 from the flash read of 49.2. 48.5 is the lowest since August 2009, and measures of new orders and output also touched similar nadirs.
The yellow line represents the final read on Michigan sentiment for March and the red line is the flash read on IHS Markit’s services gauge.
As is the case in Europe, the manufacturing sector in the US held up better in the early days of the COVID-19 lockdowns compared to services and confidence.
But you shouldn’t take any solace from the reasonably resilient headline manufacturing prints for March. They are illusory, artificial and will prove fleeting.
ISM new orders collapsed to 42.2 from 49.8, the lowest since March of 2009. That’s a 7.6-point drop and it marks the second straight month of contraction.
Employment, meanwhile, fell to 43.8 for March, the lowest since May of 2009. It too was already in contraction. “This is the eighth month of employment contraction, and at a faster rate compared to February”, the accompanying color from ISM reads. “Among the six big industry sectors, two expanded and four contracted [while] twenty-nine percent of panelist comments noted staffing-expansion plans, with the rest indicating a slowing, hiring freeze or head-count reduction”.
If you’re looking for the anomaly here, it’s obviously delivery times. “Suppliers continue to struggle to deliver, at a much stronger rate compared to February”, the survey reads. 65 is the highest print on the supplier deliveries index since June of 2018. “The coronavirus pandemic was the focus of 66 percent of this subindex’s comments, with a third of those comments related to supply chain constraints from China”, the survey notes.
“The headline index is being artificially boosted by a surge in the supplier delivery times component of the report”, ING writes, explaining this in the simplest possible terms.
“Normally, when delivery times are longer this reflects demand outstripping supply — a good situation”, the bank goes on to say, before reminding you that “today, delivery times are extended because of the supply shock relating to COVID-19 [and] as such, the ISM headline is painting an overly rosy picture [helping] to explain why non-manufacturing surveys are performing far worse than the manufacturing equivalents around the world”.
“The final PMI data for March are even worse than the initial flash estimate, with manufacturing output slumping to the greatest extent since the height of the global financial crisis in 2009”, IHS Markit’s Chris Williamson lamented. “Growing numbers of company closures and lockdowns as the nation fights the COVID-19 outbreak mean business levels have collapsed”.
That’s the long and the short of it, folks.
MANUFACTURING AT A GLANCE
MARCH 2020
| Index | Series Index Mar | Series Index Feb | Percentage Point Change | Direction | Rate of Change | Trend* (Months) |
|---|---|---|---|---|---|---|
| PMI® | 49.1 | 50.1 | -1.0 | Contracting | From Growing | 1 |
| New Orders | 42.2 | 49.8 | -7.6 | Contracting | Faster | 2 |
| Production | 47.7 | 50.3 | -2.6 | Contracting | From Growing | 1 |
| Employment | 43.8 | 46.9 | -3.1 | Contracting | Faster | 8 |
| Supplier Deliveries | 65.0 | 57.3 | +7.7 | Slowing | Faster | 5 |
| Inventories | 46.9 | 46.5 | +0.4 | Contracting | Slower | 10 |
| Customers’ Inventories | 43.4 | 41.8 | +1.6 | Too Low | Slower | 42 |
| Prices | 37.4 | 45.9 | -8.5 | Decreasing | Faster | 2 |
| Backlog of Orders | 45.9 | 50.3 | -4.4 | Contracting | From Growing | 1 |
| New Export Orders | 46.6 | 51.2 | -4.6 | Contracting | From Growing | 1 |
| Imports | 42.1 | 42.6 | -0.5 | Contracting | Faster | 2 |
| OVERALL ECONOMY | Growing | Slower | 131 | |||
| Manufacturing Sector | Contracting | From Growing | 1 | |||
