ISM Manufacturing Index: Down Slightly in March, Continued Growth

Today the Institute for Supply Management published its monthly Manufacturing Report for March. The latest headline Purchasing Managers Index (PMI) was 57.2 percent, a slight decrease of 0.5 percent from 57.7 the previous month. Today's headline number was above the Investing.com forecast of 57.0 percent.

Here is the key analysis from the report:

"The March PMI® registered 57.2 percent, a decrease of 0.5 percentage point from the February reading of 57.7 percent. The New Orders Index registered 64.5 percent, a decrease of 0.6 percentage point from the February reading of 65.1 percent. The Production Index registered 57.6 percent, 5.3 percentage points lower than the February reading of 62.9 percent. The Employment Index registered 58.9 percent, an increase of 4.7 percentage points from the February reading of 54.2 percent. Inventories of raw materials registered 49 percent, a decrease of 2.5 percentage points from the February reading of 51.5 percent. The Prices Index registered 70.5 percent in March, an increase of 2.5 percentage points from the February reading of 68 percent, indicating higher raw materials prices for the 13th consecutive month. Consistent with generally positive comments from the panel, all 18 industries reported growth in new orders for the month of March." [source]

Here is the table of PMI components.

The ISM Manufacturing Index should be viewed with a bit of skepticism for various reasons, which are essentially captured in a previous Briefing.com "Big Picture" comment on this economic indicator.

This [the ISM Manufacturing Index] is a highly overrated index. It is merely a survey of purchasing managers. It is a diffusion index, which means that it reflects the number of people saying conditions are better compared to the number saying conditions are worse. It does not weight for size of the firm, or for the degree of better/worse. It can therefore underestimate conditions if there is a great deal of strength in a few firms. The data have thus not been either a good forecasting tool or a good read on current conditions during this business cycle. It must be recognized that the index is not hard data of any kind, but simply a survey that provides broad indications of trends.

The chart below shows the Manufacturing Composite series, which stretches back to 1948. The eleven recessions during this time frame are indicated along with the index value the month before the recession starts.

ISM Manufacturing

For a diffusion index, the latest reading of 57.2 is its seventh consecutive month of expansion after a month of contraction last August. What sort of correlation does that have with the months before the start of recessions? Check out the red dots in the chart above.

How revealing is today's 0.5 point change from last month? There are 831 monthly data points in this series. The absolute average month-to-month point change is 2.0 points, and the median change is 1.5 points.