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United States PMI March 2018

United States: ISM manufacturing index eases from near 14-year high in March

Following months of positive surprises, the manufacturing sector finally took a breather in March, in line with a moderation in manufacturing activity across the globe. The Institute for Supply Management (ISM) manufacturing index eased from a near 14-year high of 60.8 in February to 59.3 in March, a larger decline than the drop to 60.0 market participants had expected. That said, the index still lies comfortably above the 50-point threshold that separates expansion from contraction in the U.S. manufacturing sector, where it has been for 19 consecutive months.

Although the underlying composition of the headline figure weakened in March, most components continued to display outstanding rates of growth. Solid demand buttressed new order growth both domestically and abroad, although both subcategories showed a more moderate pace of expansion. In turn, solid demand dynamics supported production levels in March, even though once again output growth was slightly weaker compared with the previous month. Employment growth also moderated over the previous month in March, although at 57.3 in a 100-point scale it still indicated solid hiring activities in the manufacturing sector. On a more positive note, backlogs of work rose at a steady pace in March while customers’ inventories were depleted at a faster clip, indicating outstanding consumer demand.

On the price front, input inflation accelerated markedly in March, with the prices paid index leaping to 78.1 from 74.2 in February. According to the report, the pick-up in input costs reflected the recent steel and aluminum tariff announcement. Although the largest exporters are exempted from tariffs at least until early May, concerns over future prices and supply chains prompted many manufacturers to hoard raw materials, pushing up prices and pressuring companies’ margins. These effects could be further compounded by announced tariffs on some Chinese imports, which could weigh on business confidence and see output prices go up significantly, denting consumers’ purchasing power and dragging on domestic economic growth.

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