U.S. Manufacturing Thaws With Warmer Weather
All the data seem to say the same thing: manufacturing business activity in the United States increased in the first-quarter and closed out March on a positive note. The rally comes after a winter with particularly severe weather, which affected both the supply and demand side of the market for manufactured goods.
Earlier in March, when Markit released its flash manufacturing PMI for the month, Chief Economist Chris Williamson commented that, “The buoyant growth in March rounds off the best quarter for three years, indicating that the sector should provide a robust contribution to GDP in the first quarter. Growth was not as strong as February, but that’s in many respects only to be expected after last month’s numbers had been boosted by the rebound from January’s severe weather.”
Markit’s headline flash PMI — a broad measure of the health of the manufacturing sector — read 55.5 in March, down from 57.1 in February but still comfortably in growth territory. The output index, the new orders index, and the employment index all also showed decelerated but still positive growth.
“The fact that the output and new orders indices remained so strong in March is very encouraging news that the sector has come through the weather-related soft patch and continues to play an increasingly important role in the economic upturn,” Williamson said in the statement. Significantly, the March data showed some traction for hiring.
The Institute for Supply Management’s March Report on Business supports the trend suggested by Markit’s flash PMI. The headline ISM PMI increased alongside indicators for new orders and production. The index for employment showed decelerated growth but growth nonetheless, the ninth consecutive month of positive growth.
While manufacturing appears to be undergoing a relatively healthy recovery, it’s worth remembering that at one point recently, the manufacturing sector was the underdog in the post-crisis economic recovery in the U.S. From early 2007 to late 2009, when the fallout from the financial crisis was propagating through the economy in a storm of foreclosed homes and job cuts, the national headline unemployment rate skyrocketed from 5.0 percent to a high of 10 percent. Over that same period, manufacturing unemployment climbed from 4.6 percent to a high of 13 percent.
It’s worth pointing out that while unemployment — both at the national level and within manufacturing — has fallen dramatically since then, the declines have been somewhat superficial. Labor force participation has also declined, putting artificial downward pressure on the headline rate. Within manufacturing, there are about 12.5 percent fewer total employees now than there were at the beginning of the crisis.