U.S. Manufacturing Sector Sees Growth After 18-Month Contraction

U.S. manufacturing experienced growth for the first time in a year and a half in March, with production seeing a significant rebound and new orders on the rise. However, employment in factories remained subdued, and input prices continued to increase.

“The Institute for Supply Management (ISM) reported that its manufacturing PMI rose to 50.3 last month, marking the highest reading since September 2022 and the first time above 50 in 1.5 years,” the report stated.

This rebound comes after 16 consecutive months of contraction in manufacturing, which represents 10.4% of the economy. The stretch of decline was the longest since the period between August 2000 and January 2002.

A PMI reading above 50 indicates growth in the manufacturing sector. The ISM and other factory surveys had previously exaggerated the weakness in manufacturing, which increased borrowing costs.

U.S. Manufacturing Sector Sees Growth After 18-Month Contraction
The U.S. manufacturing sector grows for the first time in 18 months, signaling economic recovery.

However, government data released last Thursday showed manufacturing output rising at an annualized rate of 0.9% in the fourth quarter of the previous year. It grew by 1.6% in 2023 compared to 0.8% in 2022.

Economists surveyed by Reuters had anticipated the PMI to increase to 48.5. Despite a shift in consumer spending towards services, demand for goods remained strong.

The ISM survey’s forward-looking new orders sub-index rose to 51.4 last month from 49.2 in February. Factory output also saw a rebound, with the production sub-index jumping to 54.6 from 48.4 in the previous month.

U.S. Manufacturing Sector Sees Growth After 18-Month Contraction
Prices for inputs rise, indicating inflationary pressures despite the sector’s growth.

Despite concerns over supply chain disruptions due to attacks on international shipping in the Red Sea by Yemen’s Houthi militants, the survey’s measure of supplier deliveries only slightly decreased to 49.9 from 50.1 in the prior month, indicating slightly faster deliveries.

However, inflationary pressures at the factory gate increased, with the survey’s measure of prices paid by manufacturers climbing to 55.8 from 52.5 in February.

Factory employment continued to shrink, albeit at a slower pace. The survey’s measure of manufacturing employment rose to 47.4 from 45.9 in February.

Nonetheless, this measure has not been a reliable predictor of manufacturing payrolls in the government’s closely watched employment report.

Sajda Parveen
Sajda Parveen
Sajda Praveen is a market expert. She has over 6 years of experience in the field and she shares her expertise with readers. You can reach out to her at [email protected]
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