March Institute for Supply Management

The March reports issued by the Institute for Supply Management (ISM) showed our economy continues moving forward.  The manufacturing component hit 61.2%, off just two-tenths from February which was a high not seen since May of 2004.  Anything above 50 indicates expansion and readings in the sixties are fairly robust.  The non-manufacturing component came in at 57.3, down 2.4 points from the prior month.  A distant cousin that takes the pulse of manufacturer’s globally posted 55.8, keeping it above its long-term average and suggesting global industrial production can advance by five to six percent this year.

Looking under the hood of the manufacturing report we see a pullback in several key areas.  New orders fell to 63.3 from 68, exports to 56 from 62.6, and employment to 63 from 64.5 points.  Growth showed itself in one weird statistic as longer lead times were needed to get orders filled.  This suggests cautious employers may ramp up future hiring if demand stays strong. Inventories actually shrank 1.4 to 47.4 points.  If demand continues, this figure will need to increase also, adding even more to the demand side.  One area where we don’t like to see growth is pricing; unfortunately, prices paid jumped by 3 to 85, the highest level since July of ’08.

The non-manufacturing (or services) report pulled back substantially but still remains well above the break-even 50 level, suggesting growth remains fairly strong but possibly slowing.  Underlining this attenuation was a seven plus point drop in business activity to 59.7 and an almost two point reduction to 53.7 for employment.  New orders were off 0.3, but still reside at a stellar 64.1 level.  Here again we saw an increase in backlogs, up four to 56.0, suggesting some of this decline in growth could reassert itself in the coming months.  Bottom line: the economy seems to be continuing in its recovery but there are slight hints the surge may be getting just a touch tired out.