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Why US Manufacturing Activity Fell in March

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Manufacturing activity fails to expand

The Institute for Supply Management (or ISM) publishes a monthly manufacturing (ITA) report that gives insight into manufacturing activity in the US. This report discusses many of the sector’s inputs, but the major focus is on the purchasing managers’ index (or PMI), which fell to 59.3 in March and 60.8 in February. The index fell 1.5%, but that should not be a reason to worry as the March reading is well above the ten-year average of 52.8. The graph below shows a list of all the indexes reported by ISM.

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Reasons for the drop in manufacturing index PMI

The key reason for the drop in the manufacturing (IGA) index was the decline in employment and new domestic and export orders. Most of the component surveys stayed above the 60 level, which indicates strong growth in the sector. These indexes are diffusion indexes, which means any reading above 50 is indicative of an expansion in the manufacturing (VIS) sector. The sector has recorded 14 consecutive months of expansion.

Key highlights of the manufacturing PMI report

According to the ISM March report, only one of the 18 manufacturing (IYJ) industries reported stagnant growth. The apparel, leather, and allied products industry reported a contraction in March. The employment index fell from 59.7 to 57.3 in March, while the price index rose to 78.1, the highest reading in seven years. The price index received support from higher commodity prices, where all the 13 commodities were reported to have witnessed a price increase, a positive sign that inflation could pick up.

The manufacturing sector (FXR) continues to expand despite the minor drop recorded in March. Manufacturing indexes continue to predict a robust performance from the sector in the months ahead.

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