While distribution executives have consistently voiced market optimism to MDM editors over the past several months, one of the industrial sector’s leading economic indicators continues to fall to concerning levels.

The Institute for Supply Management released its monthly manufacturing Purchasing Managers Index (PMI) on April 3, and it suggests that U.S. factory activity is at its lowest mark since the height of the COVID-19 pandemic.

ISM’s March manufacturing PMI had a reading of 46.3% — its fifth straight month in contraction territory (anything below 50.0%) and its lowest mark since May 2020’s 43.5%. The March reading was down 1.4 percentage points from February, which had a slight 0.3-point increase to snap a six-month streak of declines.

Of the PMI’s 10 factoring indexes, eight contracted during March from February. This was led by the New Orders index falling 2.7 points to 44.3%, indicating lower demand.

See ISM’s March PMI table below:

Index	Series Index Mar	Series Index Feb	Percentage Point Change	Direction	Rate of Change	Trend* (Months)
Manufacturing PMI®	46.3	47.7	-1.4	Contracting	Faster	5
New Orders	44.3	47.0	-2.7	Contracting	Faster	7
Production	47.8	47.3	+0.5	Contracting	Slower	4
Employment	46.9	49.1	-2.2	Contracting	Faster	2
Supplier Deliveries	44.8	45.2	-0.4	Faster	Faster	6
Inventories	47.5	50.1	-2.6	Contracting	From Growing	1
Customers’ Inventories	48.9	46.9	+2.0	Too Low	Slower	78
Prices	49.2	51.3	-2.1	Decreasing	From Increasing	1
Backlog of Orders	43.9	45.1	-1.2	Contracting	Faster	6
New Export Orders	47.6	49.9	-2.3	Contracting	Faster	8
Imports	47.9	49.9	-2.0	Contracting	Faster	5
OVERALL ECONOMY				Contracting	Faster	4
Manufacturing Sector				Contracting	Faster	5

“With Business Survey Committee panelists reporting softening new order rates over the previous 10 months, the March composite index reading reflects companies continuing to slow outputs to better match demand for the first half of 2023 and prepare for growth in the late summer/early fall period,” commented Timothy Fiore, CPSM, CPM, Chair of the ISM Manufacturing Business Committee.

Fiore noted that panelists’ comments now indicate equal levels of activity toward expanding and contracting head counts at their companies, amid mixed sentiment about the return of growth early in the second half of the year.

“New order rates remain sluggish as panelists become more concerned about when manufacturing growth will resume,” Fiore detailed. “Supply chains are now ready for growth, as panelists’ comments support reduced lead times for their more important purchases. Price instability remains, but future demand is uncertain as companies continue to work down overdue deliveries and backlogs.

ISM noted that, of the six biggest manufacturing industries, two — Petroleum & Coal Products, and Machinery — registered growth in March. Six of the 18 total industries ISM tracks reported growth, in the following order: Printing & Related Support Activities; Miscellaneous Manufacturing; Fabricated Metal Products; Petroleum & Coal Products; Primary Metals; and Machinery.

Month	Manufacturing PMI	Month	Manufacturing PMI
March 2023	46.3	Sept 2022	51.0
Feb 2023	47.7	Aug 2022	52.9
Jan 2023	47.4	July 2022	52.7
Dec 2022	48.4	June 2022	53.1
Nov 2022	49.0	May 2022	56.1
Oct 2022	50.0	April 2022	55.9
Sept 2022	51.0	March 2022	57.0
Average for last 12 months – 50.9; High – 56.1; Low – 46.3

Fiore added that 70% of manufacturing GDP was contracting at the end of March, down from 82% in February. However, more industries contracted strongly. The proportion of manufacturing GDP with a composite PMI calculation at or below 45% — a good barometer of overall manufacturing sluggishness — was 25% in March, compared to 10% in February, 26% in January and 35% in December 2022.

Here is a sample of ISM manufacturing PMI survey respondent commentary for March:

• “Orders and production are fairly flat month over month. Lead times have stabilized in most areas, so looking at reducing commitments on new orders, except for a few strategic electronic buys with lead times that are still too long.” (Computer & Electronic Products)
• “Sales a bit down, and budgets being cut with a greater emphasis on savings.” (Chemical Products)
• “Business is doing generally well, with input costs falling in some areas and rising in others.” (Food, Beverage & Tobacco Products)
• “Sales are slowing at an increasing rate, which is allowing us to burn through back orders at a faster-than-expected pace.” (Transportation Equipment)
• “Lead times are still improving, but prices continue to face inflationary pressures. Prices of steel and steel products are going up some. Hydraulic components are still facing extended lead times. We are increasing inventory levels of imports due to global uncertainty from the ongoing war in Ukraine and threats from China.” (Machinery)
• “Overall, (our) first quarter is going better than planned, with sales increases of about 7 percent versus a budget of 4.5 percent. However, sales volume is pulling down our automotive original equipment manufacturer (OEM) side, which is the majority of our business. We believe the second quarter will be hard but are holding to our outlook.” (Fabricated Metal Products)
• “Business is still slow overall. Customers have not yet picked up orders at pre-pandemic levels.” (Apparel, Leather & Allied Products)
• “Overall, things feel more stable in the first quarter 2023 than they did throughout 2021-22. Customer demand is — as expected — growing well, and the overall supply environment is far better than the previous two years. This is not to say there are not challenges; there absolutely are. However, there are fewer issues cropping up each week, and supply challenges are generally more like the ‘typical’ issues we experienced before the pandemic. We are closely monitoring the global banking situation, but no impacts have been experienced or are expected at this time. Ongoing tensions between the U.S. and China are another issue to watch.” (Miscellaneous Manufacturing)
• “New orders are starting to soften and supplier deliveries are improving slightly. This is allowing us to reduce (our) backlog and build a buffer in some categories. The supply chain disruption — particularly in electronics — is still significant compared to pre-pandemic conditions.” (Electrical Equipment, Appliances & Components)
• “Overall, business continues to remain strong. We are still experiencing supply chain issues on several indirect supplies.” (Primary Metals)