Manufacturing Contracted in March for 5th Consecutive Month

The contraction followed 28 months of gain, according to Timothy R. Fiore, chair of the Institute for Supply Management Manufacturing Business Survey Committee.

The March Manufacturing PMI registered 46.3%, 1.4 percentage points lower than the 47.7% recorded in February. Regarding the overall economy, this figure indicates a fourth month of contraction after a 30-month period of expansion. The Manufacturing PMI  is at its lowest level since May 2020, when it registered 43.5%.

“The U.S. manufacturing sector contracted again, with the Manufacturing PMI declining compared to the previous month," Fiore said. "With Business Survey Committee panelists reporting softening new order rates over the previous 10 months, the March composite index reading reflects companies continuing to slow outputs to better match demand for the first half of 2023 and prepare for growth in the late summer/early fall period. Demand eased, with the (1) New Orders Index contracting at a faster rate, (2) New Export Orders Index still below 50% and declining, (3) Customers’ Inventories Index entering the high end of a ‘just right’ level, a negative for future production and (4) Backlog of Orders Index sagging again and continuing in contraction.

Output/Consumption (measured by the Production and Employment indexes) was negative, with a combined 1.7-percentage point downward impact on the Manufacturing PMI® calculation. The Employment Index continued in contraction after two months of marginal expansion, and the Production Index logged a fourth month in contraction territory, though at a slightly lower rate. Panelists’ comments now indicate equal levels of activity toward expanding and contracting head counts at their companies, amid mixed sentiment about the return of growth early in the second half of the year.

Inputs — defined as supplier deliveries, inventories, prices and imports — continue to accommodate future demand growth. The Supplier Deliveries Index indicated faster deliveries, and the Inventories Index dropped back into contraction as panelists’ companies continue to manage their total supply chain inventories and liquidity. The Prices Index dropped back into ‘decreasing’ territory after one month of increasing prices preceded by four straight months below 50%.

The New Orders Index remained in contraction territory at 44.3%, 2.7 percentage points lower than the 47% recorded in February. The Production Index reading of 47.8% is a 0.5-percentage point increase compared to February’s figure of 47.3%. The Prices Index registered 49.2%, down 2.1 percentage points compared to February's 51.3%. The Backlog of Orders Index registered 43.9 percent, 1.2 percentage points lower than the February reading of 45.1%. The Employment Index continued in contraction territory, registering 46.9 percent, down 2.2 percentage points from February’s reading of 49.1 percent, Fiore said.