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New Orders for US Manufacturing Plunge 7.6 Percent to Great Recession Levels

As the coronavirus crisis ballooned into a full-blown pandemic in March, economic activity in the manufacturing sector contracted in response, the nation’s supply executives said in the latest Manufacturing Institute for Supply Management (ISM) “Report On Business.”

Timothy R. Fiore, chair of the ISM manufacturing business survey committee, said the March purchasing manager’s index (PMI) registered 49.1 percent, down 1 percent from February. The New Orders Index came in at 42.2 percent, a decrease of 7.6 percent from the second month of the year.

The Production Index registered 47.7 percent, down 2.6 percent month to month, while the Backlog of Orders Index fell 4.4 percent to 45.9 percent and the Employment Index declined 3.1 percent to 43.8 percent. A reading above 50 percent indicates that the manufacturing economy is generally expanding, while below 50 percent indicates that it is generally contracting.

“Comments from the panel were negative regarding the near-term outlook, with sentiment clearly impacted by the coronavirus pandemic and energy market volatility,” Fiore said. “The PMI returned to contraction territory and with a negative trajectory. Demand slumped, with the New Orders Index contracting at a strong level, in part pushed by new export order contraction…and the Customers’ Inventories Index remaining at ‘too low’ status, but increasing at a level considered a negative for future production.”

Of the 18 manufacturing industries, the 10 that reported growth in March included apparel, and leather and allied products, while textile mills were among those sectors reporting contraction.

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ISM’s New Orders Index fell for the second straight month, dropping 7.6 percent to 42.2 percent in March. This is the index’s lowest reading since March 2009, when it registered 41.3 percent during the Great Recession.

Of the 18 manufacturing industries, nine reported growth in new orders in March, including apparel, and leather and allied products, while textile mills reporting a decline in new orders.

SMI’s Production Index declined 2.6 percent to 47.7 percent in March, after two months of expansion.

“A lack of new orders, insufficient backlog and supplier delivery restrictions contributed to reduced production output,” Fiore said, noting that an index above 51.7 percent, over time, is generally consistent with an increase in the Federal Reserve Board’s industrial production figures.

The seven industries reporting growth in production during the month included apparel, and leather and allied products, while textile mills were among the five industries reporting a decrease in production.

The delivery performance of suppliers to manufacturing organizations was slower in March, as the Supplier Deliveries Index registered 65 percent. This is 7.7 percentage points higher than the 57.3 percent reported for February.

“The coronavirus pandemic was the focus of 66 percent of this subindex’s comments, with a third of those comments related to supply chain constraints from China,” Fiore said.

A reading below 50 percent indicates faster deliveries, while a reading above 50 percent indicates slower deliveries. The 16 industries reporting slower supplier deliveries in March were led by apparel, leather and allied products and textile mills. No industry reported faster supplier deliveries in March.

The Inventories Index registered 46.9 percent in March, a 0.4 percent increase from February.

“The index contracted for a 10th straight month, but at a slower rate,” Fiore said. “Inventories are expected to grow as disruptions in the supply chain lead to inefficiencies in material conversion and continued advance stocking to protect production schedules.”

Among the 11 industries reporting a decrease in inventories in March were apparel and leather and allied products, and textile mills.

The ISM Prices Index decreased 8.5 percent to 37.4 percent in March, falling for the second consecutive month. The 15 industries reporting a decrease in prices for raw materials in March included apparel, and leather and allied products. Textile mills reported no change in prices.

Another sign of the impact of COVID-19 was seen in the Caixin China General Manufacturing PMI, which jumped to 50.1 in March from February’s record low of 40.3, signaling a broad stabilization of business conditions. Output rose slightly as more firms reopened following widespread company shutdowns and travel restrictions in February amid the COVID-19 outbreak.

At the same time, demand struggled with new orders falling for the second straight month and export sales falling sharply. On the price front, input costs fell for the first time since August last year, while firms cut their selling prices.