Manufacturing in the U.S. expanded in March at its slowest rate in nearly two years, held back by low oil prices and uncertain foreign economies.
The latest index report from the Institute for Supply Management fell to 51.5 from 52.9 in the previous month, coming in well below analysts’ estimates of around 52.5. It’s the fifth straight month the pace of manufacturing expansion has slowed in the U.S.
The strong dollar leading to the high price of American products continues to weigh on the economy, something MAPI economist Dan Meckstroth says is going to get worse before it gets better.
“A major downside to the ISM report is that the manufacturing trade deficit continues to worsen—imports are growing faster and exports are declining,” he added. “Some of the weakness in the index can be attributed to the West Coast port slowdown that delayed imported components incorporated into domestic production. But for the most part, the increase in the value of the dollar, and particularly the strong U.S. growth relative to other advanced economies, is unbalancing trade. Foreign trade will be a major drag on manufacturing activity and the general economy this year and next.
Despite the drop, any reading above 50 does indicate growth. The declines are a sign companies are struggling with a strong dollar holding back exports. Meanwhile, investment from oil companies has dropped as the price of oil has taken a dive.
Even soaring consumer confidence number and the resolution of the West Coast port slowdown weren’t able to make an impact on the ISM report. But help could be coming according to TD economist, Ksenia Bushmeneva, “Fortunately, there appear to be signs that activity is beginning to revive outside of the U.S. Following last year's slowdown, Eurozone's manufacturing PMI is now firmly in expansionary territory, helped by a weaker euro and improving regional economic conditions as a result of the ECB's quantitative easing program. Factory activity in China also exhibited modest improvement in March. With time, this gradual improvement in global activity should manifest itself in stronger global demand for U.S.-made goods.”
Other notable items, new orders fell to 51.8 from 52.5 in February, the weakest since May of 2013. And order backlogs came in at 49.5, down from 51.5.
A positive component was production, coming in at 53.8, up from 53.7 in February. It marks 31 straight months of growth.
Of the 18 industries tracked by the ISM, 10 reported growth, led by paper, wood and transportation products. Seven were on the decline including apparel, coal, and petroleum products.