Manufacturing Growth Slowed In March… Maybe

The manufacturing sector’s growth slowed in March, according to the Institute for Supply Management. The composite reading for ISM’s Manufacturing index dropped to 51.3, down from 54.2 in February. Values above the neutral 50 mark indicate growth. New orders for manufactured goods also declined, according to ISM data, slumping to 51.4 from 57.8 previously.

On the other hand, the employment component in today’s report picked up, rising to the highest level since June. The fact that employment activity strengthened a bit leaves room for debate if today’s decline in the broad read on manufacturing is noise or a sign of new headwinds for the sector.

Another reason for reserving judgment comes from a competing survey of US manufacturing activity that offers a considerably brighter profile of the sector in March. The final estimate of the Markit U.S. Manufacturing PMI for last month reflects “strong growth” and “faster” employment growth (pdf). Markit’s PMI benchmark rose to 54.6, up slightly from 54.3 in February.
This isn’t the first time that the two manufacturing measures have contradicted one another. Let’s recall that the ISM Manufacturing Index faltered last November while the Markit data suggested otherwise. It turned out the slight dip under 50 in the ISM composite data was a false alarm. In fact, the Markit data remained above 50 in November and beyond, implying that manufacturing activity would continue to expand, as it has in the months since.
Is today’s relatively sluggish ISM report another bout of noise that’s not necessarily a sign of things to come? Yes, according to Markit Economics. Only time will dispatch the final answer, of course. Meantime, with conflicting messages for March to consider, it’s certainly premature to say that sector’s expansion has run into a cyclical wall.