US manufacturing sector likely to improve further

The US ISM manufacturing index for March was up 2.3 points and reached 51.8, entering the expansionary territory for the first time since August 2015. Consensus forecast was for a rise to 51. Delving into details, new orders recorded the strongest growth, rising 6.8 points to 58.3, while production and the backlog of new orders rose 2.5 to 55.3 and 51 respectively.

Meanwhile, prices grew to 51.5, rising by 13 points, hinting at solid raw material price pressures. Also, exports recorded strong growth, rising by 5.5 to 52. This might indicate towards gradual rebound in global conditions, according to TD Economics.

Inventories and new orders spread broadened to 11.3 in March from 6.5 in February, because of solid growth in new orders. This suggests that the US manufacturing sector is expected to rebound further, added TD Economics. Out of 18 manufacturing industries, five recorded contraction in March.

March’s data hints at a strong recovery in the country’s manufacturing sector that contacted for six continuous months. Even if US dollar’s strength has receded slightly in 2016, manufacturing sector is facing headwinds due to past gains. Moreover, slow growth in global economy will lead to a slow rebound in the sector. However, the new export activity recovery in March suggests that global headwinds might be beginning to alleviate, noted TD Economics.

Nevertheless, the underlying details give certain reason for caution. Inventories increased again in March that had been shrinking in recent months. In previous months, high inventories have been one of the elements resulting in lower production. Furthermore, even if drop in employment amidst increase in production suggests rebound in manufacturing productivity, it might also imply that employers are wary regarding the period of the rebound in new orders, said TD Economics.