Decline Follows Disappointing Regional Data, Markit Revised Lower
Manufacturing sector activity contracted modestly in March according to the Institute of Supply Management, slightly better than the regional data leading up to it, but likely the first in a string of monthly declines.
The headline PMI index fell to 49.1 from 50.1 in February, ahead of expectations for a decline to 43.5. However, the headline figure was supported by a sharp rise in the supplier deliveries index that indicates slower deliveries.
While this is usually considered a positive, as it indicates factories are busy, this time the slowdown was due to supply issues.
The Markit manufacturing index, released earlier Wednesday, was revised down to 48.5 from 49.2 in the flash estimate and 50.7 in February, as conditions worsened later in the month.
Survey respondents in the ISM report noted considerable disruption from the COVID virus, both in the US and from foreign suppliers. As a result, several components moved well into contraction territory.
There were notable declines in the readings for new orders (42.2 vs 49.8 in February), production (47.7 vs 50.3) and prices paid (37.4 vs 45.9).
Additionally, the ISM data suggest that Friday’s March employment data could include declines in manufacturing jobs and hours worked. The employment index fell to 43.8 from 46.9 in February.
ADP reported a 27,000 decline for private payrolls in March, which included a 90,000 decline in small business jobs that offset gains in medium and large businesses. Trade, transportation, and utilities, as well leisure and hospitality, were the hardest hit sectors.
The timing of the COVID-19 economic restrictions, coming mostly after the employment survey week, is likely to mute some of the impact on the March jobs report, but a 150,000 nonfarm payrolls decline is still expected.
US construction spending data for February, released at the same time as the ISM report, showed a reduction in spending even before the COVID impact. Overall spending fell by 1.3%, down by a 0.6% drop in private residential spending and a 2.0% decline in nonresidential spending. Public construction spending fell by 1.5%. Construction spending is likely to slip in March and for the next several months.