U.S. manufacturers reported activity in March slowed for the fifth consecutive month, according to a survey released Wednesday by the Institute for Supply Management. The weak reading is the latest sign the economy has lost whatever momentum it may have had at the start of 2015.
The ISM’s manufacturing purchasing managers index fell to 51.5 in March from 52.9 in February, just above a reading indicating economic contraction. The index has fallen each month since hitting 57.9 in October.
Still, as was the case following the weak ADP private sector jobs report released earlier Wednesday, which showed manufacturing losing 1,000 jobs this month, some remain optimistic.
“We’re well-positioned for a better quarter and year ahead,” said Bradley Holcomb, who oversees the ISM factory survey, citing shrinking customer inventories that should lead to increased orders later in the year. “Since some issues are temporary, chances are good we will see a rebound like happened last year.”
But economists surveyed by The Wall Street Journal had expected the latest PMI to fall to only 52.5, and any reading below 50 signals contraction. The latest round of weak economic data this week may just force economists to further lower their first-quarter growth estimates, which currently range between an abysmal 0.9 and 1.4 percent annualized growth rate. Meanwhile, the government adjusted its data last week to show the economy grew at a 2.2 percent rate in the fourth quarter.
Now, the worse-than-expected ISM survey numbers further support those downward revisions. Of the 18 industries in the March survey, just meager 10 reported growth.
“There is now little doubt that manufacturing downshifted in the first quarter,” wrote Ryan Sweet, senior economist at Moody’s Analytics, in a research note.
In its report, the ISM continued to blame the weather, as well as higher health-care costs and the stronger dollar.
By far, the biggest disappointment in the ISM report was the drop in the employment index, which fell to 50.0 in March from 51.4 in February, teetering on contraction.
The weak ADP National Employment Report and the ISM survey’s employment numbers raised additional concerns about Friday’s employment report.
“Even considering the ADP data’s poor track record of predicting the [Bureau of Labor Statistics} data, we now think there is downside risk to our forecast for the BLS data that will be released on Friday,” wrote economists at J.P. Morgan.
They continue to forecast an increase of 250,000 jobs last month.
The new orders index dropped to 51.8 from 52.5 in February, and the exports index declined to 47.5 from 48.5, contracting again for three months in a row. The ISM production index was little changed at 53.8 from 53.7.
The ISM’s prices paid index rose to 39.0 last month from 35.0 in February, and the last expansionary reading for the subindex was only 53.5 back in October.
U.S. manufacturers aren’t letting their inventories grow too fast. The ISM inventory index fell to 51.5 from 52.5.
