The March 2017 Manufacturing ISM® Report on Business®indicates another solid month for a manufacturing uptick. The ISM Purchasing Managers’ Index (PMI) came in at 57.2%, a 0.5 percentage point reduction from February 2017. The March data add to mounting evidence that U.S. manufacturing output performance is on track for moderate improvement up from the stagnant average growth rate of less than 1% that has plagued the factory sector since 2013.
Yet again, the labor market is the one strong player in an otherwise lackluster economic expansion. After a slowdown in the latter months of 2016, total net new job growth registered an unexpectedly strong 227,000 in January. With the current unemployment rate at 4.8%, this has provoked debates as to whether we have hit a level below which inflation and other expansion-threatening instabilities begin to appear.
There is good news for manufacturers from the Purchasing Managers’ Index. It rose by 1.5 points in the last month to 56%, continuing its five-month upward trend and indicating a likelihood of U.S. manufacturing growth. However, we should be cautious in the interpretation of this indicator because as history has shown, in uncertain times, we need a fuller set of indicators to forecast growth.
From data clarity comes policy clarity. While the December jobs report shows that labor market performance remains steady, there are significant concerns that are not going to abate on their own. It was a good year for those seeking work. Employers added a net 2.2 million new jobs to their payrolls. This is slower than the 2.7 million added in 2015 and the 3 million added in 2014. It is nonetheless an encouraging performance given that the employment recovery began in earnest six years ago and has been confronting sluggish and volatile economic growth.
In a potentially brighter sign for a slow-growing, stressed U.S. manufacturing sector, the Institute for Supply Management reported that its widely followed Purchasing Managers' Index rose to a two-year high in December. This critical leading index of manufacturing growth has been strengthening consistently since September even as actual manufacturing output data remain distressingly weak, preventing the U.S. factory sector from achieving a full recovery from the Great Recession.