New York April 3 2023: US factory activity contracted in March by more than expected, with a closely watched gauge dropping to its lowest level since May 2020 as measures of new orders and employment retreated.
The Institute for Supply Management’s gauge of manufacturing activity decreased to 46.3 in March, below the median estimate of 47.5 in a Bloomberg survey of economists. Readings below 50 indicate contraction. Excluding the pandemic, last month’s reading was the worst since 2009.
The latest data, released Monday, suggest rising interest rates, growing recession fears and tighter lending conditions may be starting to weigh on business investment. That’s compounding the demand challenges the sector already faced as households continue to shift more of their discretionary spending toward services.
ISM’s new orders index deteriorated in March to 44.3, and the gauge of production, while improving from a month earlier, remained in contraction territory.
“New order rates remain sluggish as panelists become more concerned about when manufacturing growth will resume,” Timothy Fiore, chair of ISM’s Manufacturing Business Survey Committee, said in a statement. “Price instability remains, but future demand is uncertain as companies continue to work down overdue deliveries and backlogs.”
Twelve industries reported contraction in March, led by furniture, nonmetallic mineral products and textiles. Six sectors expanded.
The group’s employment measure fell for a third month to 46.9 — the lowest level since July 2020 — suggesting headcount declined in the month. The government’s employment report will be released Friday and will give a fuller picture of the job market in the month.
The contraction in the employment gauge reflects factories implementing hiring freezes and laying off workers, Fiore said on a conference call with reporters. That’s different from last year, when the index fell into contraction territory due to challenges filling vacancies.
Supplier deliveries quickened, with the group’s gauge falling to a 14-year low on the heels of subdued demand that is helping alleviate any lingering strains in supply chains. Meantime, manufacturer inventories, which had stabilized in recent months, shrank at the fastest pace in nearly two years.
Select ISM Industry Comments
“Sales a bit down, and budgets being cut with a greater emphasis on savings.” - Chemical Products
“Business is doing generally well, with input costs falling in some areas and rising in others.” - Food, Beveragee & Tobacco Products
“Sales are slowing at an increasing rate, which is allowing us to burn through back orders at a faster-than-expected pace.” Transportation Equipment
“Lead times are still improving, but prices continue to face inflationary pressures. Prices of steel and steel products are going up some. Hydraulic components are still facing extended lead times.” - Machinery
“Business is still slow overall. Customers have not yet picked up orders at pre-pandemic levels.” - Apparel
“Customer demand is — as expected — growing well, and the overall supply environment is far better than the previous two years. This is not to say there are not challenges; there absolutely are.” - Miscellaneous Manufacturing
“New orders are starting to soften and supplier deliveries are improving slightly. This is allowing us to reduce (our) backlog and build a buffer in some categories.” - Electrical Equipment & Appliances
“Overall, business continues to remain strong. We are still experiencing supply chain issues on several indirect supplies.” - Primary Metals
The measure of prices paid for materials indicated declining costs. That follows data out last week that showed a key inflation gauge followed closely by Federal Reserve officials rose at a slower pace in February. Price pressures have been particularly stubborn in the service side of the economy.