Manufacturing index falls in March as COVID-19’s effects hit suppliers, consumers

Economic activity in the manufacturing sector contracted in March as the purchasing manufacturers’ index (PMI) fell only 1 point to 49.1. While the overall economy grew for the 131st consecutive month, concerns about the future state of affairs for manufacturing are evident. The new orders, production, backlog and employ indexes all showed declines in March. Inventories was the only major index to show a slight increase for the month of March.

“Comments from the panel were negative regarding the near-term outlook, with sentiment clearly impacted by the coronavirus (COVID-19) pandemic and energy market volatility,” said Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management (ISM) Manufacturing Business Survey Committee in a press release. “The PMI returned to contraction territory, and with a negative trajectory. Demand slumped, with (1) the New Orders Index contracting at a strong level, in part pushed by new export order contraction, (2) the Customers’ Inventories Index remaining at ‘too low’ status, but increasing at a level considered a negative for future production, (3) the Backlog of Orders Index contracting again, at a moderate rate.

Consumption (measured by the Production and Employment indexes) contributed negatively (a combined 5.7-percentage point decrease) to the PMI calculation, with activity contracting at a faster rate. Inputs — expressed as supplier deliveries, inventories and imports — strengthened in March, due primarily to supplier delivery difficulties; inventory contraction stabilized. Despite imports contracting at strong rates due primarily to coronavirus impacts. Prices continued to contract (and at a faster rate in March), supporting a negative outlook.

“The coronavirus pandemic and shocks in global energy markets have impacted all manufacturing sectors. Among the six big industry sectors, food, beverage & tobacco Products remains strongest, followed by chemical products, which in addition to the pharmaceutical component, is a significant contributor to the food, beverage & tobacco products industry and beneficiary of low energy and feedstock prices,” Fiore said. “Transportation Equipment and Petroleum & Coal Products are the weakest sectors. Sentiment regarding near-term growth this month is strongly negative, by a 2-to-1 ratio.”

Ten of the 18 listed industries reported growth for the month of March. Many of the respondents were focused on COVID-19 and what it will mean for their future:

• “COVID-19 is impacting China’s raw material supply chain. We are now seeing revenue impact in that region. Our operations team is reviewing plans for spread of the virus.” (Computer & electronic products)
• “The two main issues affecting our business [are] COVID-19 and the oil-price war. We are in daily discussions and meeting constantly, updating tracking logs to document high risk concerns.” (Chemical products)
• “COVID-19 impact has extended to Europe and North America. The virus escalation is affecting our purchasing and logistics operations. We have incurred air-shipment and production interruptions due to shortages of raw materials and components.” (Transportation equipment)
• “We are experiencing a record number of orders due to COVID-19.” (Food, beverage & tobacco products)
• “World demand for petroleum products is declining, while supply is ramping up. We have lost supply chain visibility to certain locations.” (Petroleum & coal products)
• “COVID-19’s spread in the U.S. may start impacting our domestic business. As for Asian suppliers, they are starting to get back up to speed.” (Fabricated metal products)
• “COVID-19 has caused a 30-percent reduction in productivity in our factory.” (Machinery)
• “A big part of our business is hospitality, and we are seeing demand drop and an increase in cancellations.” (Nonmetallic mineral products)
• “All North American manufacturing plants have ceased operations or drastically scaled back as a result of customer plant closings and other responses to COVID-19.” (Plastics & rubber products)
• “Volumes are down 4.3 percent, and some areas of the supply chain are being affected by the coronavirus.” (Furniture & related products)

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