Signs of Spring Growth for Manufacturers

by: Cliff Waldman, Chief Economist

The March 2017 Manufacturing ISM® Report on Business® indicates another solid month for a manufacturing uptick. The ISM Purchasing Managers’ Index (PMI) came in at 57.2%, a 0.5 percentage point reduction from February 2017. The March data add to mounting evidence that U.S. manufacturing output performance is on track for moderate improvement up from the stagnant average growth rate of less than 1% that has plagued the factory sector since 2013. Comments from survey respondents are positive with talk of business conditions as “improving,” “positive,” “strong,” and “looking up.”

The new orders and production components, while falling from February’s levels, support the moderately brighter picture suggested by the positive trend of the overall index since August 2016. Slower supplier deliveries and a growing backlog of orders also provide further support for a more positive forecast and suggest that there is momentum in the manufacturing improvement story. The backlog of orders has now grown for two consecutive months after a long period of contraction, a striking and welcome turn for production.

Data on actual manufacturing output from the Federal Reserve are basically in sync with the recent ISM data as they show an acceleration of growth in U.S. manufacturing since the beginning of 2017. However, the year-over-year improvement thus far is moderate. Nonetheless, the reasonably broad-based nature of factory sector growth in both January and February suggests growth stability.

Signs of wide, yet modest, improvement in global growth are the key driver of better performance in U.S. manufacturing. Unfortunately, the problems of a high dollar, a long-term capital spending malaise, and significant policy uncertainty remain to challenge the magnitude of the U.S. manufacturing improvement, even as the world finally provides much-needed support for U.S factories.