Supplies are getting tighter and prices are getting higher as manufacturing continued its downward trend in March. These challenges continue to test the mettle of even the most entrepreneurial manufacturing leaders.

The March 2008 Manufacturing ISM Report on Business, from the Institute for Supply Management (ISM), shows its index (48.6) was slightly better than February’s (48.3) though still in the decline mode. February’s reading of 48.3 was the lowest in almost five years since the index fell to 46.1 in April 2003.

In February, orders for manufactured goods fell 1.3 percent, after a revised 2.3 percent decline in January. The ISM index had been 49.1 in February — near the magical 50 — which separates expansion from contraction, to 46.5 in March. This tired trend may have partly resulted from the precipitous plunge in consumer confidence of almost 12 points as noted by the Conference Board last week.

So, while the overall economy grew a little faster, the manufacturing sector continued to contract last month, albeit more slowly than earlier.

Fueling this decline were a drop-off in new orders, a decrease in imports and an increase in prices.

New Orders
ISM’s New Orders Index for last month registered 2.6 percentage points lower than the seasonally adjusted 49.1 percent reported in February.

The industries that reported decreases during March: nonmetallic mineral products; plastics and rubber products; wood products; machinery; fabricated metal products; and transportation equipment.

Eight industries reported increases during March: printing and related support activities; miscellaneous manufacturing; electrical equipment, appliances and components; furniture and related products; paper products; primary metals; computer and electronic products; and chemical products.

Imports
Although new export orders increased for the 64th consecutive month of growth in export orders, imports of materials by manufacturers contracted during March. The Imports Index registered 45 percent, 2.5 percentage points lower than the 47.5 percent reported in February.

The industries that reported decreases in imports during March: nonmetallic mineral products; petroleum and coal products; paper products; furniture and related products; electrical equipment, appliances and components; primary metals; fabricated metal products; machinery; chemical products; plastics and rubber products; and food, beverage and tobacco products.

The five industries reporting growth in import activity for March: apparel, leather and allied products; printing and related support activities; textile mills; misc. manufacturing; and transportation equipment.

Prices for Raw Materials
After months of relentlessly rising prices for commodities such as metals and petroleum derivatives, some raw materials prices have begun to dip, Bloomberg reports. “This phase of the commodity bull market is more or less flushed out,” Charles Morris, portfolio manager at HSBC Investment Management, told Bloomberg.

Meanwhile, for many businesses, the end of cheap credit “will mean a substantial increase in borrowing costs and possible postponement of capital spending plans,” predicts The Washington Post. “Many banks aren’t passing the lower money costs made possible by the Fed along to consumers or businesses.”

Supplies are getting tighter and prices are getting higher as manufacturing continued its downward trend in March. These challenges will test the mettle of the best entrepreneurs and business leaders.

Still, minimal growth seems preferable to no growth.

The Economist forecasts the percentage of real GDP growth will be 0.8 percent for 2008 and 1.4 percent for 2009.

Resources

March 2008 Manufacturing ISM Report on Business
Institute for Supply Management, April 1, 2008

Consumer Confidence Index Declines Almost 12 Points
The Conference Board, March 25, 2008

Commodities Tumble as U.S. Recession Risk Weighs on Oil, Copper
by Grant Smith
Bloomberg, April 1, 2008

End of Cheap Credit Hits Homes, Businesses
by Steven Mufson
The Washington Post, March 18, 2008

Economic Data
The Economist, March 7, 2008