ISM's PMI report for March shows Manufacturing Slowly Contracting

The Institute for Supply Management (ISM) released their March 2008 Manufacturing ISM Report on Business.

PMI came in at 48.6% which was 0.3% above February 2008’s figure. Per ISM:

“A reading above 50 percent indicates that the manufacturing economy is
generally expanding; below 50 percent indicates that it is generally
contracting. A PMI in excess of 41.1 percent, over a period of time,
generally indicates an expansion of the overall economy. Therefore, the PMI
indicates the overall economy is growing and the manufacturing sector is
contracting at this time. Ore stated, "The past relationship between the PMI and
the overall economy indicates that the average PMI for January through March
(49.2 percent) corresponds to a 2.5 percent increase in real gross domestic
product (GDP). In addition, if the PMI for March (48.6 percent) is annualized,
it corresponds to a 2.4 percent increase in real GDP annually."

This month’s reading of 48.6% is still relatively strong. PMI was bolstered by strong exports which were helped by the weak dollar. Inflationary pressures with the ISM Price index registering 83.5 compared to last month of 75.5. 69% of respondents reported higher prices with only 2% reporting lower prices. Per ISM, “A Prices Index above 47.4 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Index of Manufacturers Prices.”

Here is what some of the respondents were saying:

• "Automotive demand continues to decline." (Fabricated Metal Products)
  


• "Business is still cautiously optimistic." (Machinery)
  


• "High oil prices and material shortages are becoming a real challenge to deal with in day-to-day operations." (Paper Products)
  


• "European business continues robust." (Primary Metals)
  


• "Business continues to be down by 20 percent over the past four months." (Furniture & Related Products)

PMI has dropped below 43 in every recession since World War 2. PMI often drops before or at the beginning of recessions. When PMI drops, it can drop very quickly.

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