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ISM: Overall growth continues; manufacturing contracts in March

April 7, 2020
“The coronavirus pandemic and shocks in global energy markets have impacted all manufacturing sectors.”

Economic activity in the manufacturing sector contracted in March, but the overall economy still managed to record growth for the 131st consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business.

“Comments from the panel were negative regarding the near-term outlook, with sentiment clearly impacted by the coronavirus (COVID-19) pandemic and energy market volatility,” said Timothy R Fiore, chair of the ISM Business Survey.

“The PMI returned to contraction territory, and with a negative trajectory. Demand slumped, with (1) the New Orders Index contracting at a strong level, in part pushed by new export order contraction, (2) the Customers' Inventories Index remaining at ‘too low’ status, but increasing at a level considered a negative for future production, (3) the Backlog of Orders Index contracting again, at a moderate rate. Consumption (measured by the Production and Employment indexes) contributed negatively (a combined 5.7-percentage point decrease) to the PMI calculation, with activity contracting at a faster rate.

“Inputs—expressed as supplier deliveries, inventories and imports—strengthened in March, due primarily to supplier delivery difficulties; inventory contraction stabilized. Despite imports contracting at strong rates due primarily to coronavirus impacts, inputs contributed positively to the PMI calculation. (The Imports Index does not directly factor into the PMI.) Prices continued to contract (and at a faster rate in March), supporting a negative outlook.”

The March PMI registered 49.1%, down 1 percentage point from the February reading of 50.1%.

Other highlights from the report:

  • The New Orders Index registered 42.2%, compared to the February reading of 49.8%.
  • The Production Index registered 47.7%, compared to the February reading of 50.3%.
  • The Backlog of Orders Index registered 45.9%, compared to the February reading of 50.3%.
  • The Employment Index registered 43.8%, compared to the February reading of 46.9%.
  • The Supplier Deliveries Index registered 65%, compared to the February reading of 57.3%, and limited the decrease in the composite PMI.
  • The Inventories Index registered 46.9%, compared to the February reading of 46.5%.
  • The Prices Index registered 37.4%, compared to the February reading of 45.9%.
  • The New Export Orders Index registered 46.6%, compared to the February reading of 51.2%.
  • The Imports Index registered 42.1%, compared to the February reading of 42.6%.

“The Supplier Deliveries Index is one of five equally weighted subindexes that directly factor into the PMI, along with New Orders, Production, Employment and Inventories,” Fiore said. “Supplier Deliveries is the only ISM Report On Business index that is inversed—a reading of above 50% indicates slower deliveries, which is typical as the economy improves and customer demand increases. However, the high index reading in March was primarily a product of coronavirus-related supply problems.”

Primary metals and miscellaneous manufacturing were among 10 manufacturing industries reporting growth in March. Transportation equipment, fabricated metal products and machinery were among six industries reporting contraction.

“The coronavirus pandemic and shocks in global energy markets have impacted all manufacturing sectors,” Fiore said. “Among the six big industry sectors, Food, Beverage & Tobacco Products remains strongest, followed by Chemical Products, which in addition to the pharmaceutical component, is a significant contributor to the Food, Beverage & Tobacco Products Industry and beneficiary of low energy and feedstock prices.

“Transportation Equipment and Petroleum & Coal Products are the weakest sectors. Sentiment regarding near-term growth this month is strongly negative, by a 2-to-1 ratio.”

Here are some selected comments from respondents:

  • “COVID-19 is impacting China’s raw material supply chain. We are now seeing revenue impact in that region. Our operations team is reviewing plans for spread of the virus.” (Computer & Electronic Products)
  • “The two main issues affecting our business [are] COVID-19 and the oil-price war. We are in daily discussions and meeting constantly, updating tracking logs to document high risk concerns.” (Chemical Products)
  • “COVID-19 impact has extended to Europe and North America. The virus escalation is affecting our purchasing and logistics operations. We have incurred air-shipment and production interruptions due to shortages of raw materials and components.” (Transportation Equipment)
  • “We are experiencing a record number of orders due to COVID-19.” (Food, Beverage & Tobacco Products)
  • “World demand for petroleum products is declining, while supply is ramping up. We have lost supply chain visibility to certain locations.” (Petroleum & Coal Products)
  • “COVID-19’s spread in the US may start impacting our domestic business. As for Asian suppliers, they are starting to get back up to speed.” (Fabricated Metal Products)
  • “COVID-19 has caused a 30% reduction in productivity in our factory.” (Machinery)
  • “A big part of our business is hospitality, and we are seeing demand drop and an increase in cancellations.” (Nonmetallic Mineral Products)
  • “All North American manufacturing plants have ceased operations or drastically scaled back as a result of customer plant closings and other responses to COVID-19.” (Plastics & Rubber Products)
  • “Volumes are down 4.3%, and some areas of the supply chain are being affected by the coronavirus.” (Furniture & Related Products)