US manufacturing has slowed

Regular readers will know that I follow the regional Fed manufacturing surveys in the US for two reasons. The first is that after the GFC, which prompted the need for the US to rebalance to external demand, the PMIs are a key guide to whether any expansion is sustainable. Second, I predicted a run of good data after the September freeze in demand on the debt-ceiling debacle initiated by a mini inventory cycle. That means that some portion of the current flush of US growth may prove temporary. In the month of March, the regional surveys slowed slightly but all showed considerable falls in new orders, indicating weakness ahead.

First the New York Fed, which showed moderate strength:

The general business conditions index was little changed in March and, at 20.2, indicated a continued moderate pace of growth in business activity for New York State manufacturers. One-third of respondents reported that conditions had improved, while just 13 percent reported worsening conditions. The new orders index inched down three points to 6.8, indicating a modest growth in orders. The shipments index fell five points to 18.2, revealing a continued increase in shipments, though at a slower pace than in February. The unfilled orders index rose six points to -1.2; though negative, this is the highest value for the index since June 2011. The delivery time index rose six points to 7.4, indicating that delivery times lengthened. The inventories index rose to zero, suggesting that inventory levels held steady.

Not bad but new orders are indicating further slowing. The same dynamic was apparent in the Philly Fed:

The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, edged slightly higher, from a reading of 10.2 in February to 12.5, its highest reading since April of last year. Indexes for new orders and shipments remained positive but weaker than their February levels. The new orders index decreased 8 points, to 3.3, while the shipments index declined 12 points, to 3.5. The indexes for both delivery times and unfilled orders, which recorded slightly positive readings last month, fell back into negative territory this month, suggesting faster deliveries and a decline in unfilled orders.

Firms’ responses suggest a slight pickup in levels of employment this month. The current employment index, which has been positive for seven consecutive months, increased 6 points. Twenty-two percent of the firms reported an increase in employment, compared to 15 percent in February. Firms reporting a longer workweek (20 percent) only narrowly outnumbered those reporting a shorter one (17 percent), and the current workweek index decreased 7 points.

In the south, the Dallas Fed news was similar:

Texas factory activity continued to increase in March, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, held steady at 11.1, suggesting growth continued at about the same pace as last month. Most other measures of current manufacturing conditions also indicated continued expansion in March, although new orders stagnated. The shipments index rose from 4.2 to 8.6, with more than a quarter of manufacturers noting an increase in shipment volumes. Capacity utilization increased further in March; the index edged up from 10 to 12.3. The new orders index meanwhile fell from 5.8 in February to zero this month, suggesting demand stalled.

Perceptions of broader economic conditions remained positive in March. The general business activity index was positive for the third month in a row, although it fell from 17.8 to 10.8. Twenty-three percent of firms noted improvement in the level of business activity, while 12 percent noted a worsening. The company outlook index posted a sixth consecutive positive reading, but it also retreated slightly, falling to 9.5 from 15.8 last month. Labor market indicators reflected higher labor demand. Strong employment growth continued in March, although the index edged down from 25.2 to 21.7. Twenty-nine percent of firms reported hiring new workers, while 7 percent reported layoffs. The hours worked index continued to suggest average workweeks lengthened.

The Richmond Fed saw new orders and current activity slump:

In March, the seasonally adjusted composite index of manufacturing activity—our broadest measure of manufacturing—declined thirteen points to 7 from February’s reading of 20. Among the index’s components, shipments lost twenty-three points to 2, new orders dropped ten points to finish at 11, and the jobs index moved down seven points to end at 6.

And last night, the Kansas City Fed released a better result:

The month-over-month composite index was 9 in March, down from 13 in February but up from 7 in January (Tables 1 & 2, Chart). The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. Manufacturing growth eased in both durable and nondurable goods-producing plants, with the exception of computer and electronic equipment products. Other month-over-month indexes were mixed in March but remained mostly solid. The production index dropped from 20 to 13, and the order backlog index also fell after rising last month. In contrast, the shipments and new order indexes both increased from 8 to 17, and employment index also edged higher. The raw materials inventory index decreased from 14 to 0, while the finished goods inventory index rose for the second straight month.

So, as expected, we are seeing a slowing in US manufacturing which is likely to get worse before it gets better. However, at this stage it’s not decisive. Calculated Risk offers this aggregated chart of the indexes:

As you can see, in trend terms there is a reasonable correlation between the aggregate and tonight’s ISM, the national manufacturing PMI. However, there are regular departures month to month so I’d be cautious about reading too much into tonight’s result.