Manufacturing Sector Reports Show Strength

Growth in Markit Economics' U.S. manufacturing sample is marginal with the PMI coming in at 51.5 for the final reading on March. This is up only slightly from February's 51.0. A positive is strength in new orders which points to better rates of plus-50 growth in the months ahead. Employment is also up though the reading here contrasts with the big decline in this morning's payroll data on manufacturing. Production held unchanged while backlog orders shrank. The sample is destocking with prices, for both inputs and products, falling. A positive in the report is stabilization for export orders which appear to be getting an early boost from the fall in the dollar. Yet for now, the manufacturing sector is just dragging along, evident in durable goods data and also this morning's data on factory hours.

Recent History Of This Indicator:
The manufacturing PMI final is expected to edge 3 tenths higher from the flash reading to what would nevertheless be a weak 51.7. Unlike actual government data on the factory sector, this report never showed contraction last year though it has been slowing so far this year. Declines for energy equipment and for exports have been specifically cited as major negatives in this report. The pace of production is at multi-year lows and selling prices posted one of their rare drops in the flash report. 

...meanwhile...

A big surge in ISM new orders is certain to shake up what has been a very downbeat outlook for the manufacturing sector. ISM's composite index came in at 51.8 for March, a plus 50 reading made more respectable by the now ended string of sub-50 readings that go all the way back to October. But it's the new orders index, getting a boost from exports, that steals the show, surging nearly 7 points to 58.3 for the best result since July last year. Other readings include strength in production and backlogs and, again, new export orders which jumped 5.5 points to 52.0 for their best showing since December 2014. ISM's new orders index, which is widely watched and is actually a component of the index of leading economic indicators, fits in with what may be emerging talk of a June rate hike. 

Recent History Of This Indicator:
The ISM manufacturing index is expected to post a modest 1.0 point gain and move back over the 50 divide for the first time since September. New orders have been holding over 50 so far this year with a pair of 51.5 readings in January and February. Otherwise, backlogs and exports have been in contraction as has employment which is at its lowest point since 2009. But a rise over 50 for the headline index, which however isn't guaranteed, would definitely give a lift to the manufacturing outlook.