Dull demand continued to mute manufacturing industry growth over the past month, according to two national indices.
The Institute for Supply Management’s Report on Business registered a Purchasing Managers’ Index of 46.3% in March, a 1.4-percentage-point drop from the previous month, and the lowest level seen since May 2020.
The S&P Global US Manufacturing PMI posted a rosier reading at 49.2, up from 47.3 in March. A reading below 50.0 indicates an industry in economic contraction.
While the two readings showed slightly different pictures of the industry's health, economists for both indices blamed the fifth month of contraction on weak demand that spurred companies to cut costs.
"The timely delivery of inputs allowed firms to work through backlogs, but sparse demand amid pressure on customer spending due to higher interest rates and inflation spoke to challenges ahead for goods producers if there is little change in domestic and international client appetite," Senior Economist at S&P Global Market Intelligence Siân Jones said in a statement.
ISM's new orders index dropped 2.7 percentage points last month, down to 44.3%, while the production index remained nearly flat at 47.8%. ISM's employment index fell to 46.9%, down from 49.1% in February.
Manufacturers are taking further steps to manage their inventory and labor costs as slow demand leads to low output, said Chair of the ISM Manufacturing Business Survey Committee Timothy Fiore.
Fiore noted on a call with reporters that the March index results support his statement from last month that a once hoped for recovery at the start of H2 2023 is now not likely to come until the end of Q3.
"The probability of July and August being strong months is probably being pushed down," Fiore said. "Maybe we're looking more now at a Q4 increase in activity levels."
On pricing, Fiore noted that the industry had reached a "stalemate," as suppliers refuse to drop prices further as commodity costs remain elevated. After nudging back into growth territory last month, the ISM prices index fell 2.1 percentage points to 49.2%.
Companies are taking further actions to reduce headcounts as the demand rebound remains uncertain over the next several months.
"I think we've pretty much burned off all the over-ordering," Fiore said. "Now companies are facing the reality that the demand is just not going to come back at a level that probably supports the current headcount."
