US Manufacturing Slumps to Lowest Level in 3 Years

A person works at an injection molding station at the Polaris manufacturing and assembly plant in Roseau, Minn., on June 7, 2021. Dan Koeck/Files/Reuters

U.S. manufacturing activity contracted in March for the fourth straight month, dropping to its lowest level in nearly three years amid a sharp pullback in demand.

The Institute for Supply Management (ISM) said in an April 3 report that its Manufacturing Purchasing Managers’ Index (PMI) fell to 46.3 last month compared to 47.7 percent in February. Readings below 50 represent contraction.

Last month’s Manufacturing PMI reading was the lowest since May 2020, when the gauge registered 43.5 percent.

“Regarding the overall economy, this figure indicates a fourth month of contraction after a 30-month period of expansion,” Timothy Fiore, chair of the ISM’s Manufacturing Business Survey Committee, said in a statement.

Demand for manufactured goods has declined, the report shows, with new orders and order backlogs contracting at a faster pace in March than in February.

“Sales are slowing at an increasing rate, which is allowing us to burn through back orders at a faster-than-expected pace,” an executive in the transportation equipment sector was cited in the survey as saying.

New orders fell by 2.7 percentage points, to 44.3 percent in March from 47 percent in February.

“Business is still slow overall. Customers have not yet picked up orders at pre-pandemic levels,” said an executive from the apparel sector, according to the survey.

The backlog of orders fell by 1.2 percentage points, to 43.9 percent in March from 45.1 percent a month prior.

Inflation Easing?

The slump in demand has had an impact on input-cost inflation.

The ISM’s prices paid by manufacturers fell from 51.3 percent in February to 49.2 percent in March. The drop into negative territory signals a contractionary trend.

The latest government figures on producer prices hint at a similar picture of inflationary pressures easing, at least in terms of business input costs.

The latest data on the producer price index (PPI), which measures inflation from the perspective of costs to manufacturers and service providers, fell by 0.1 percent in February.

The drop was led by a pullback in prices for final demand goods, which retreated by 0.2 percent.

The PPI gauge is often looked to as an indicator of the future direction of consumer prices as production costs tend to get passed along to end users.

Consumer price inflation, as reflected in the consumer price index (CPI) measure, has also shown some signs of softening. In February, the CPI gauge rose by 0.4 percent month over month, a slightly slower pace than the 0.5 percent notched in January.

In the 12 months through February, consumer price inflation came in at 6 percent, the lowest since September 2021.

The disinflationary signs are likely to be met with relief by Federal Reserve policymakers, who have hiked interest rates at a feverish pace to quash inflation that recently hit a four-decade high and has proven far more persistent than many officials predicted.

There has been hope on Wall Street that the Fed might be nearly finished with its rate-hiking cycle and that cuts could even happen later this year.

According to Goldman Sachs, U.S. stocks have tended to return an average of 8 percent in the three months following the peak of the federal funds rate.

Still, the inflation picture going forward remains far from clear.

The OPEC+ alliance of oil-producing countries voted on April 2 to slash crude production by 1.15 million barrels per day, sending prices soaring on April 3 and reviving fears that inflation could once again resurge.