US manufacturing, supply constraints and higher prices start to show up

The March ISM manufacturing index ticked up by .3 pts to 52.7 m/o/m and that was better than the expected slight dip to 52.3. The internals were a bit mixed though as new orders fell to 3 month low and backlogs gave back some of the February gain. Inventories remained negative at 47.1, down 1.7 pts while only at 40.1 at the customer level. With new orders specifically, ISM said ”Demand sentiment was mixed, with a 1-to-1 ratio of positive to negative comments in March, a marked decrease from last month where there were two positive comments for every negative one.”

Employment remained below 50 at 48.7 and the last time it was above 50 was in September 2023.

Evidence of the war impact was seen in the jump in supplier deliveries (reflecting strained supply chains) which rose to 58.9, up 3.8 pts to the highest since the supply strains in 2022. Also, prices paid jumped almost 8 pts to 78.3, also the highest since 2022. Of the 18 industries asked, 17 are now paying higher prices vs 14 in February and 11 in January. ISM said “The Prices Index reading continues to be driven by (1) increases in steel and aluminum prices that impact the entire value chain, (2) tariffs applied to many imported goods and now (3) increases in petroleum-based products as a result of the recent Middle East conflict.”

Export orders were about 50 at 49.9 after getting back above it in the two prior months.

With respect to industry breadth, 13 industries saw growth vs 12 in the month before.