March Manufacturing Index Says New Orders, Production Growing
Tuesday, April 02, 2002
(Tempe, Arizona) - April 2, 2002 - Economic activity in the manufacturing sector grew for the second consecutive month in March. The overall economy grew for the fifth consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business. The report was issued today by Norbert J. Ore, C.P.M., chair of the Institute for Supply Management Manufacturing Business Survey Committee and group director, strategic sourcing and procurement, Georgia-Pacific Corporation. "The March report certainly validates the turnaround for manufacturing. While the growth in production slowed, new orders rose to a very lofty level, in fact, reaching a level last seen in October 1986. It is encouraging that the rate of decline in employment is slowing and that a number of businesses indicated that they are starting to rehire." ISM’s Backlog of Orders Index indicates that order backlogs grew for the second consecutive month. ISM’s Supplier Deliveries Index reflects slower deliveries for the third consecutive month. Manufacturing employment continued to decline in March as the index remained below the breakeven point (an index of 50 percent) for the 18th consecutive month. ISM’s Prices Index moved above 50 percent as manufacturers experienced higher prices for the first time after 12 consecutive months of lower prices. New Export Orders grew in March for the third consecutive month. March’s Imports Index accelerated slightly registering growth for the fourth consecutive month. Comments from supply executives varied greatly by industry. Chemicals and Electronics industry respondents see improvement, but it is very slow. Primary Metals received a boost from the steel tariffs, while the Fabricated Metals and Industrial Equipment sectors are concerned about paying higher metals prices. ISM’s PMI is 55.6 percent in March, an increase of 0.9 percentage point from the 54.7 percent reported in February. ISM’s New Orders Index rose from 62.8 percent in February to 65.3 percent in March. ISM’s Production Index declined 3.4 percentage points from 61.2 percent in February to 57.8 percent in March. The ISM Employment Index is at 47.5 percent for March, an increase of 3.7 percentage points when compared to the 43.8 percent reported in February. ISM’s Supplier Deliveries Index rose to 53.1 percent from 52.3 percent in February. ISM’s Inventories Index is 41.2 percent. ISM’s Customer Inventories Index declined slightly to 40 percent from February’s 41.5 percent indicating a faster rate of inventory liquidation when compared to February. ISM’s Prices Index in March is 51.9 percent, an increase of 10.4 percentage points from February’s 41.5 percent. ISM’s Backlog of Orders Index rose from 53 percent in February to 62.5 percent in March. ISM’s New Export Orders Index registered 51 percent, up 0.1 percentage point from February’s 51.1 percent. Imports of materials by manufacturers grew, as ISM’s Imports Index is 53.4 percent for the month, up from February’s 52 percent. "The overall picture shows growth in manufacturing activity during March and a strong finish for the first quarter," added Ore. "The PMI indicates a second consecutive month of significant growth. This month the Prices Index made a strong move upward indicating the return of pricing power in some commodities. While the Prices Index was up, the list of commodities up in price is quite small suggesting it is too early in the recovery to worry about inflation as a result of pricing moves. Manufacturing has struggled for many months, and industries like primary metals and textiles have been through a devastating period. Overall growth for the first quarter is stronger than predicted and capable of providing a basis for continuing recovery in the second quarter. To this point, the economy has benefited from low energy prices, low inventories, and low interest rates. However, it now appears that energy prices are rising, we have reached the end of the inventory liquidation, and interest rates will certainly rise. The capital investment tax credit will help, but ultimately consumers will need to reestablish themselves as the major driver." Of the 20 industries in the manufacturing sector, 15 industries reported growth: Apparel; Primary Metals; Textiles; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Instruments & Photographic Equipment; Furniture; Transportation & Equipment; Electronic Components & Equipment; Glass, Stone & Aggregate; Rubber & Plastic Products; Fabricated Metals; Printing & Publishing; Wood & Wood Products; Food; and Industrial & Commercial Equipment & Computers. "Steel is the only commodity reported in short supply. Commodities reported up in price are: Aluminum, Fuel, Natural Gas, and Steel. The commodities reported down in price are: Caustic Soda, Corrugated Containers, Resins, and Wood Pulp," Ore stated. The Manufacturing ISM Report On Business is based on data compiled from monthly replies to questions asked of purchasing and supply executives in over 400 industrial companies. Membership of the Business Survey Committee is diversified by Standard Industrial Classification (SIC) category, based on each industry’s contribution to Gross Domestic Product (GDP). Twenty industries from various U.S. geographical areas are represented on the committee.