For the more relevant manufacturing segment of the overall industrial sector, the picture was generally negative. "For the first quarter as a whole, manufacturing output was down 0.5%, and this follows a decline of 0.6% in the fourth quarter of 2007," the economist points out. Though the manufacturing situation in March was improved over January and February, it was hardly worth bragging about. According to the latest Manufacturing ISM Report on Business from the Institute for Supply Management in Tempe, AZ, even as the overall US economy grew for the 77th consecutive month, economic activity in the manufacturing sector remained stagnant in the final month of Q1.
"The manufacturing sector failed to grow in March as the PMI (Production Manufacturing Index) fell below 50% for the second consecutive month," says Norbert Ore, chair of the institute's Manufacturing Business Survey Committee. "This completes the weakest quarterly performance for the US economy since Q2 of 2003. Manufacturers' order backlogs continue to erode as the New Orders Index failed to grow for the fourth consecutive month. Additionally, manufacturers continue to experience heavy cost pressures, as the prices they pay are still rising even with slower overall demand."
Additional slowdowns can be expected. A new report from Industrial Info Resources Inc. in Sugar Land, TX says that while spending within the nation's industrial manufacturing industry over the last nine months closely matched that for the preceding nine months, each of the past three quarters has seen a decline. According to IIR statistics, capital and maintenance project completion descended from $8.6 billion in Q3 '07 to $7.8 billion in Q4 and $7 billion in Q1 '08. A bigger percentage drop is predicted for Q2.
At the same time, both Ore and Bethune note, while the overall sector suffers, some manufacturers are benefiting from strong export demand. "Industries such as aerospace, computers and agricultural equipment, which have a high exposure to export markets, are performing much better than industries that have primarily a domestic orientation, such as wood products, construction machinery and motor vehicles," the latter remarks. On a yearly basis, he says, computers and electronics are up 17.9% and aerospace is up 7.2%. By contrast, wood products are down 11.5%, motor vehicles 9.1% and machinery 1.2%.
Unfortunately, the problems in the US economy appear to be affecting the rest of the world as well. The Global Manufacturing PMI from JPMorgan reveals that growth of global manufacturing production in March was the weakest since May '03, as the volume of new orders was unchanged compared to levels a month earlier. The report says cost inflationary pressures remain elevated, with the rate of increase in average purchase prices accelerating sharply.
"Global manufacturers faced the dual headwinds of muted demand and accelerated cost inflationary pressure in March, with the rate of increase in input prices the second strongest in the survey history," says David Hensley, JPMorgan's London, UK-based director of global economics coordination. "The current data also suggest that growth of global industrial product slowed to a rate of around 1% towards the end of Q1 and provided no real evidence that this trend is likely to be reversed in the coming months."
Regionally, PMIs for China and India remained solidly above the 50 no-change mark, while the Eurozone PMI lost further ground, posting a five-month low of 52 as robust gains in Germany were partly offset by weakness in Ireland, Spain and Italy. Japan's PMI fell back below the 50 mark for the first time since October.
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