American Manufacturing is Picking Up—But So Are Input Prices
The American manufacturing sector saw its first growth spurt in more than a year during the month of March, and the textile sector was at the top of the list of industries that experienced gains.
Reporting released by the Institute for Supply Management (ISM) on Monday revealed that economic activity in the U.S. manufacturing industry expanded last month after 16 consecutive months of contraction.
More from Sourcing Journal
Timothy R. Fiore, CPSM, C.P.M., chair of ISM’s Manufacturing Business Survey Committee wrote that its manufacturing purchasing managers index (PMI) reached 50.3 percent up from 47.8 in February—the index’s first above-50-percent reading since September 2022. A PMI above 50 percent indicates expansion.
The bounce-back indicates manufacturing getting onto the same track as the overall economy, which has been expanding for 47 months straight after one month of contraction during April 2020. The ISM’s New Orders Index also moved into expansion territory, reaching 51.4 percent—2.2 percent higher than the month prior.
Meanwhile, the March reading of the Production Index hit 54.6 percent, 6.2 basis points higher than February. The New Export Orders Index reading of 51.6 percent remained consistent with the previous month.
“Production execution surged compared to January and February, as panelists’ companies reenter expansion,” Fiore said. Overall, “Demand was positive, output strengthened and inputs remained accommodative.”
The improvements in demand were reflected by the New Orders Index moving back into expansion territory, along with fewer comments from nationwide purchasing and supply executives regarding “softening,” he added. The movement of New Export Orders into expansion range was supported by respondents’ “stronger optimism,” while output, measured by the Production and Employment indexes, “surged.”
“Panelists’ companies notably increased their production levels month over month,” Fiore added.
But despite the fact that the group’s Employment Index hit 47.4 percent, a 1.5-percent increase from the 45.9 percent seen in February, layoffs continued throughout March, with substantial reductions in headcount reported for the sixth month in a row. Heightened raw materials costs, too, are a lingering cause for concern.
The ISM’s Prices Index came in at 55.8 percent in March, up from 52.5 percent the previous month. “The Prices Index indicated moderate expansion in March, recording its highest level since July 2022 (60 percent),” the ISM chair said. “Commodity prices continue to be volatile, especially crude oil, aluminum and plastics. Twenty-four percent of companies reported higher prices, compared to 18 percent in February.”
According to ISM, the nine manufacturing industries, in order, that reported growth in March include textile mills, non-metallic mineral products, paper products, petroleum and coal, primary metals, food, beverage and tobacco products, fabricated metal products, chemical products and transportation equipment.
Textile mills reported employment growth, but they also reported slower supplier deliveries, higher inventories and increased prices for raw materials in March. The apparel sector, too, reported that its customers’ inventories remain too elevated and raw materials were more expensive.
“Demand remains at the early stages of recovery,” Fiore said. While there are “clear signs of improving conditions,” prices on inputs have been increasing at a faster rate for the past three months.”Suppliers continue to have capacity but are showing signs of struggling, due in large part to their raw material supply chains,” Fiore said.
