US Economy Still Expanding According to New Data
The ISM Purchasing Manager's Index (PMI) showed strong numbers for March
The Index
The Institute for Supply Management (ISM) publishes an influential report called the Purchasing Manager’s Index (PMI) monthly. The US PMI is used by traders, asset managers, and manufacturing industry executives as a barometer of current business conditions. There are regional versions of this report as well as a national report.
The PMI is created by surveying Manufactoring sector firms (usually 300 or so). It’s called a “soft-data” report because it does not rely on reporting hard quantities of things like sales, orders, etc. Instead, it asks questions about the growth or contraction of five main business areas: inventory levels, new orders, supplier deliveries, production, and employment environment.
The index is reported in a way that is straight-forward and easy to interpret: if a number is above 50, conditions are expanding. If the number is less than 50, conditions are contracting. ISM also reports on the pace of expansion- whether conditions are slowing despite being above 50, for example.
March US PMI
By the Numbers
March PMI was a healthy 57.2. This relatively strong number is actually a decline of 0.5% from February’s 57.7 reading. We take this to mean that business conditions are still in a growth phase and well in the safe-zone as far as PMI prints go. A decline from February to March is somewhat surprising, given that business conditions are often slower in both January and February than other months historically.
The most interesting thing for us is actually in the sub-indices of the report. Production costs have risen since the turn of the year, signaling potential growth in inflation. Two separate managers quoted by ISM speak to this in today’s PMI report: “Starting to see some prices creeping up. We are raising our sales prices as well.” (Food, Beverage & Tobacco Products); “Overall, material inflation is now clearly upon us.” (Paper Products).
To be specific on inflation, the index registered a 70 on Prices. This is a 2.5% increase since just last month. ISM notes that this is a faster rate of increase than we’ve seen recently.
Other things we took note of were New Export Orders (59– a 4% increase since February) and a Production decline from 62.9 to 57.6– a decline of 5.3%. Imports also declined 0.5% along with inventories (decline of 2.5%).
Thanks for reading our report on the United States Purchasing Manager’s Index (US PMI). We’ll be reporting on this topic from time to time- this is our first report on the PMI. We hope you join us again for more national and Oregon regional business & economic news! Subscribe to the newsletter below if you’re new, and check out our reports on related topics as well.
Meet the Author & Portfolio Manager
Victor Schramm is a Certified Fund Specialist (CFS®), with expertise in Mutual Funds & Variable Annuity Separate Accounts. He focuses on long term investing geared toward our annuity clients as a Fee Only Investment Advisor. He lives in Portland, OR.
Victor Schramm, CFS®Analyst & Portfolio Manager
Disclaimer
This information is solely a representation of publicly available facts intended for educational use only. This is not a solicitation to buy or sell any public or private Security, in any city named in the article or elsewhere. PMI and other soft data is not a recommended Market timing tool- we do not expect readers will use this data to buy or sell securities.