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Manufacturing slows, as PMI slips again

The Institute for Supply Management's March 2015 Manufacturing ISM Report on Business once again indicates slippage. While it remains on the expansion side of the 50 benchmark (below 50 shows a contraction while above 50 signals expansion), the Purchasing Management Index (PMI) dropped from 53.5% in January to 52.9% in February and now to 51.5% for March.

The New Orders Index also fell from 52.5% in February to 51.8% in March, but the Production Index remained steady at 53.8%, ticking up from 53.7% in February. The Employment Index registered 50%, a drop of 1.4% from March's 51.4%, "reflecting unchanged employment levels from February," noted Bradley J. Holcomb, Chair of the Institute for Supply Management Manufacturing Business Survey Committee. One could say that it also reflects additional layoffs in manufacturing that we saw during March.

The Supplier Deliveries Index also fell 4.3 percentage points, from February's 54.3% to 50.5% in March, indicating a slowing of new orders, as noted above. The Inventories Index dropped one percentage point, from 52.5% in February to 51.5% in March, with the Customers' Inventories Index falling even lower to 45.5% in March from 46.5% in February, which is far too low. Given that inventory is an expense and more manufacturers are seeing a slowdown in new orders, most are keeping a tight rein on their inventory situation.

The Prices Index continues to decrease, registering 39.0% for March. However that is up 4.0% from February's 35.0. That remains good news for manufacturers as prices, while up a bit, are moving in that direction slowly. The Backlog of Orders also fell below the benchmark, from 51.5% in February (above the benchmark of 50) into the contracting zone 49.5% for March.

Some of the comments reported by the ISM PMI survey respondents noted some residual "congestion" at West Coast U.S. ports after the slowdown/strike by the longshoremen. "Operating costs are higher due to increases in healthcare premiums," said one manufacturer. However, "falling energies have helped on the cost side," noted a food/beverage processor. Transportation remains a bright spot with one respondent from that market saying, "business is extremely strong."

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