March 2015 Institute for Supply Management

Economic activity seems to have decelerated in March 2015, according to data from the Institute for Supply Management (ISM).  While both segments of output slowed, services remained strong.  Unfortunately, manufacturing’s tally dropped to 51.5 (the lowest level since May 2013) from 52.9 in February, inching ever closer to the 50.0 mark which is a level associated with stagnation.  Meanwhile, nonmanufacturing dropped to 56.5 from 56.9 in the prior period, but this is nowhere near the stall speed level.

Manufacturing is subject to more influence from the global economy than its service counterpart, and March’s survey is reflecting this impact. Export orders dropped 1.0 percentage point to 47.5, a level that suggests exports should contract in the months ahead.  For some perspective, this most recent decline is the third consecutive monthly drop after 25 months of continuous growth.  Of the thirteen exporting industries in the survey, eight noted decreasing orders in the period.  Before this segment of today’s missive becomes too glum, it should be noted that the overall manufacturing tally has grown (meaning a reading above 50) for 70 months in row.

Nonmanufacturing experienced a slight setback, but its reading is still indicative of a healthy economy.  Not only was the headline figure strong, but an important leading component showed additional promise with new orders accelerating to 57.8 versus 56.7 a month earlier.  This bodes well for the near-term future of services, the largest segment of our economy.

In all, this iteration of ISM demonstrated the global situation.  America’s manufacturing base is suffering at the hand of global trade patterns, something to which services are largely not subject.  Nonmanufacturing continues to ride the coattails of America’s strength, but even so it lost some momentum in March.  U.S. output is still moving forward, but its rate of increase has slowed.             (by C. Cox)