The manufacturing sector continues to roll, with factories stepping up production and hiring, experiencing an increasing backlog of orders and reporting a rise in exports, says the nation's supply executives in the latest Manufacturing ISM Report On Business®. In fact, the manufacturing report has been registering highs not seen in 20 years for the past few months, and in March, it exceeded expectations, hitting 62.5%—an increase of 1.1 percentage points from the previous month.

"Plain and simple, this report tells us that the manufacturing sector is smoking," Steven Stanley, of Greenwich Capital Markets, tells USA Today. The report, which is issued by the Institute for Supply Management (ISM), gives an early indication of the status of the manufacturing sector.

According to March figures, economic activity in the manufacturing sector grew for the 10th consecutive month, while the overall economy expanded for the 29th month in a row. Based on a survey of purchasing managers, an index above 50 indicates expansion within the manufacturing sector while a reading below 50 signifies contraction over the prior month. An index at 50 means that there was an equal balance between manufacturers reporting gains and declines in their business.
The report was released by Norbert J. Ore, C.P.M., who manages the index for the ISM and is also group director of strategic sourcing and procurement at Georgia-Pacific Corporation. "Both new orders and production remain strong and have significant momentum going into the second quarter," he notes. Also encouraging is the upward movement of the employment index, which grew for the fifth consecutive month. The index reached 57% for March, an increase of 0.7 percentage point from February.

ISM's backlog of orders index indicates that order backlogs increased in March. Meanwhile, ISM's prices index signifies that manufacturers once again experienced higher prices in their purchases, and at the highest rate since January 1995. The new export orders and import indexes continue to grow, with new export orders accelerating significantly during the month.

Comments from purchasing and supply managers center on higher energy and material costs, the availability of certain metals and the weaker dollar. As leadtimes extend, their concerns are shifting from cost issues to availability.

ISM's new orders index declined 0.7 percentage point from 66.4% in February to 65.7% in March. The production index increased 1.6 percentage points from 63.9% in February to 65.5% in March.
ISM's supplier deliveries index registered 67.9%, 5.8 percentage points higher than February's 62.1%. The inventories index posted 48.3% in March, down from the 49.4% in February. ISM's customers' inventories index for March is at 39.5%, an increase of 1 percentage point compared to the previous month's reading. Meanwhile, the latest prices index is 86%, 4.5 percentage points higher than the 81.5% reported in February.

ISM's backlog of orders index increased 1.5 percentage points, registering 63.5% in March. The new export orders index hit 62%, an increase of 7.1 percentage points from February's 54.9 percent. Meanwhile, the imports index decreased 3.4 percentage points to 56.8% in March.

"The first quarter was very strong for the manufacturing sector and the economy overall. Our survey respondents generally indicate that business is quite strong," says Ore.

All participating industries reported growth: leather; tobacco; industrial and commercial equipment and computers; transportation and equipment; miscellaneous*; apparel; primary metals; wood and wood products; instruments and photographic equipment; electronic components and equipment; chemicals; fabricated metals; textiles; furniture; paper; glass, stone and aggregate; rubber and plastic products; printing and publishing; and food.

To learn how you might respond to this survey and contribute to this monthly report on the state of the manufacturing sector, please visit the ISM Report or contact Kristin Bryson at ISM (kbryson@ism.ws).

For more information on the latest Manufacturing ISM Report On Business, go to www.ism.ws/ISMReport/.
*Miscellaneous is a preponderance of jewelry, toys, sporting goods and musical instruments.

Sources:

March Manufacturing ISM Report On Business
Institute for Supply Management
www.ism.ws/ISMReport

Manufacturing Perks Up in March
Sue Kirchhoff
USA Today, April 1, 2004
www.usatoday.com/money/economy/production/2004-04-01-ism_x.htm