U.S. manufacturing activity slumped in March to the lowest level in nearly three years as new orders plunged, and analysts said activity could decline further due to tighter credit conditions.
The Institute for Supply Management (ISM) survey on Monday showed all subcomponents of its manufacturing PMI below the 50 threshold for the first time since 2009. Some economists said this suggested a recession was around the corner, while others said much would depend on the services sector, whose PMI remains consistent with a growing economy.
The survey made no direct comment on recent financial markets turmoil. Makers of miscellaneous products said they were "closely monitoring the global banking situation" but there were no impacts "at this time."
Federal Reserve rate hikes to fight inflation have raised borrowing costs and cooled demand for goods.
"Manufacturing is pulling back, but the service sector was still chugging along in February," said Chris Low, chief economist at FHN Financial in New York. "As long as it remains well above 50 when reported on Wednesday, the broad economy should be just fine. Nevertheless, the health of manufacturing is related to the health of the overall economy."
The ISM's manufacturing PMI fell to 46.3 last month, the lowest level since May 2020, from 47.7 in February. Outside the COVID-19 pandemic, it was the weakest reading since mid-2009.
Economists polled by Reuters had forecast the index would dip to 47.5. The PMI remained below the 50 threshold for the fifth straight month, a sign of contraction in manufacturing, yet hard data have suggested continued moderate growth in manufacturing, which accounts for 11.3% of the economy.
Manufacturing expanded at a 4.5% annualized rate in the fourth quarter, the government reported last week. Reports last month also showed orders for capital goods excluding aircraft eked out a small gain in February as did manufacturing output.
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