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Economic Report: U.S. factory activity stumbles in March to lowest level in 18 months, ISM survey shows

The numbers: The Institute for Supply Management’s Manufacturing PMI, a closely followed index of U.S.-based manufacturing activity, slipped to 57.1% in March from 58.6% in the prior month, the research group said Friday. This is the lowest level since September 2020.

Given strength in the regional manufacturing surveys in March, economists polled by The Wall Street Journal had forecast a slight improvement to 59%.

Any number above 50% signifies growth. This is the 22nd straight month the index has been above the breakeven rate.

Key details: The new-orders index dropped a sharp 7.9 points to 53.8%, and the production index fell 4 points to 54.5%,the ISM reported.

Released after the U.S. March jobs report on Friday, the ISM employment index rose 3.4 points to 56.3%. The prices index shot up 11.5 points to 87.1%.

Growing inventories also offset some of the weakness.

Big picture: Manufacturing activity continues at a solid pace despite supply-chain problems. Richmond Fed President Thomas Barkin said earlier this week that businesses still are frustrated by bottlenecks in their supply chains. 

What the ISM said: Timothy Fiore, chair of the ISM manufacturing business survey committee, said he thought the sharp drop in new orders was a “blip.”

“I think order backlogs stayed up well and the customer inventory level is low. I expect new export orders to kind of restart,” Fiore told reporters.

The drop in new orders was caused by “the whole uncertainty about what the world is looking like,” with Europe pausing due to the war in Ukraine and COVID flaring in China.

Looking ahead: “Growing inventories and slowing production and orders are typically not a good combination for this index. The data suggest continued expansion of manufacturing activity in the month, but sharply rising prices and continued lack of supply of both labor and input materials limit the upside to growth,” said Tom Simons, an economist at Jefferies.

Market reaction: Stocks


were slightly higher on Friday on the back of a strong job report. The yield on the 10-year Treasury note

rose to 2.446%.

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