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United States PMI March 2019

United States: ISM manufacturing index rebounds from two-year low in March on solid employment gains

The U.S. manufacturing sector appeared to stabilize in March after seesawing in the previous months. The Institute for Supply Management (ISM) manufacturing index rose from a 27-months low of 54.2 in February to 55.3 in March, exceeding expectations of a stable reading. Thus, the index remained above the 50-point threshold that separates expansion from contraction in the sector, where it has been for 31 consecutive months.

The improvement in the index in March came primarily on the back of a solid uptick in employment growth, which had softened in February, as well as a smaller increase in both output and new order growth. The new export orders index however fell in the month and was much weaker than the overall order index, indicating that domestic demand continued to be the main driver of activity in the manufacturing sector amid rapidly cooling external demand and global growth prospects. This was further confirmed by customers’ inventories which continued to deplete quite sharply, albeit at a slower pace than in February. Meanwhile, growth in companies’ order backlogs slowed to a near-standstill.

Looking at supply side indicators, the March reading confirmed the rapid waning of supply chain strain observed since the beginning of the year. Input inventories grew at a more modest pace than in February, as firms prioritized utilizing existing stocks over increasing their purchasing activity in a context of cooling demand momentum. Consequently, imports growth also softened in the month, while supplier delivery times lengthened at a more modest pace. Lastly, after two months of mild price declines, input inflation significantly rebounded. Overall, the reading suggests that the manufacturing sector is adequately adjusting to a softer—yet still robust—momentum in the months ahead after a patch of strong growth through most of 2018.

Commenting on this month’s release, researchers at Nomura noted:

“Altogether, today’s report surprised to the upside and, combined with the improvement in manufacturing sentiment in China, suggests that we could be close to reaching the trough in the recent manufacturing sector weakness. However, over the near term, consistent with still-moderating new orders indices, we think there is still likely some room for further softness, in particular exports-related segment of the industry.”

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