The ISM manufacturing index in March fell to 57.2 exactly as expected from 57.7 in February. This figure printed 52 right before the election. New orders moderated by .6 pts to 64.5 but after jumping by 4.7 pts in February. Backlogs rose .5 pt after spiking by 7.5 pts last month. Employment was a particular bright spot as it rose 4.7 pts to the 58.9, the best since June 2011. Also great to see was the 4 pt rise in export orders to 59, the highest since November 2013 although just 11 of 18 industries saw an increase. Manufacturing inventories fell back below 50 at 49, down 1.5 pts. Customer inventories stayed below 50 for the 6th straight month at 47. Cost pressures intensified as prices paid rose another 2.5 pts to 70, a level last seen in May 2011. Similar to the trend we saw in February, 17 of 18 industries surveyed saw growth and all 18 saw growth in new orders. With respect to the inflation print, 16 of 18 industries saw the price increases, the same amount as seen in February. I love to watch the Journal of Commerce Index of 18 industrial materials and its less than 4 pts from the highest level since December 2014.
Bottom line, this is another sentiment indicator that is bullish on growth but again it just reflects the direction of change, not the degree. Markit also had its measure of US manufacturing out today and they had a more tempered take. They said “The post election resurgence of the manufacturing sector seen last year is showing signs of losing steam. Output growth slowed to a 6 month low in March, optimism about the outlook has waned and hiring has slowed accordingly.” Markit’s employment measure is in stark contrast to ISM which Markit said is “consistent with official manufacturing payroll numbers falling slightly.” Let’s assume the truth lies somewhere in between.
At least for the manufacturing of autos and parts, March is shaping up to be a challenge in terms of retail sales. We’re looking at the slowest pace of sales since August with sales reported today so far and this fits with the repeated theme that we are past the best days in the auto sector in this cycle and it’s now hangover time. Easy money pulled forward a lot of car/truck sales and now there are less sales to pull forward. Add on falling used car prices and pressures will only grow for new ones. Banks also in response to rising delinquencies and falling residual values are likely in turn trimming financing offers.