The U.S. manufacturing sector grew faster in March than the previous month, with employment growth at its highest level since November 2018, according to the Institute for Supply Management.
March’s purchasing manager index (PMI) from the ISM was 55.3, a 1.1 percentage point increase from February. The index’s rise in March follows a weak result in February when the PMI reached its lowest point in over two years. Its recent volatility stems from the U.S. trade war with China, which has created burdensome tariffs and uncertainty in the sector over the last year.
Despite trade headwinds, March’s mid-50s result marks the 119th consecutive month of expansion in U.S. manufacturing. This month’s rise was driven in large part by a spike in the report’s employment index, which increased by 5.2 percentage points to 57.5. Thirteen of the 18 industries surveyed by the ISM showed employment growth in March.
After reaching its lowest point in nearly 80 years in 2010, U.S. manufacturing employment has been rising steadily, with continued gains in the first quarter of 2019.
Economists say March’s spike in the ISM’s employment index does not necessarily indicate a rebound in the Labor Department’s upcoming jobs report, though it’s certainly a positive sign.
Multiple respondents to the ISM survey mentioned having significant hiring needs, noting a skills gap among prospective employees.
“Our greatest issue right now is operating labor, besides costs and the usual,” said Bob Visscher, general manager of Resolute Tissue, a paper manufacturing company based in Sanford, FL.
Visscher’s 72-employee facility makes toilet paper and paper towel products, producing 26,000 tons of tissue a day. He says the company has more job openings than they are able to fill. “There’s probably more jobs than there are people, and it’s difficult to find good people,” he said. “We lost volume to our sister mill because of manpower, a lack of labor force.”
While hiring was top of mind for some manufacturers, others were closely watching trade negotiations between the U.S. and China, fearing upcoming tariff escalations that could hurt the sector if a deal isn’t reached.
“There are two sources of uncertainty that make it tough for businesses to do planning,” said Tom Simons, senior economist at Jefferies LLC. “We don’t know what our trade relations with China are going to be moving forward and we don’t know how long tariffs are going to persist.”
A petroleum and coal industry purchasing manager told the ISM that steel tariffs are continuing to put upward pressure on their input costs. A wood products industry manager noted that the “Chinese trade war is still holding business back, but expectations are that in April or May, business will spring back materially as tariffs resolve.”
The U.S. and China both saw manufacturing sector growth in March. China’s official PMI for the month hit a six-month high of 50.5, up 1.1 percentage points from February.
But in the U.S., imports and new export orders fell to new lows in March’s ISM report. The imports index dropped to 51.1, its lowest growth level since January 2017. The new exports index fell to 51.7, its lowest level in 29 months.
Jefferies’ Simons says this month’s ISM report shows a U.S. manufacturing sector that is well positioned for strong growth if the trade war can be resolved. “If we do get a trade deal with China, I think that the comments suggest that we’ll see a really nice acceleration.”