Update: What does the ISM mean for the market? In an earlier post, we pointed out that the market tends to bottom at the same time as the ISM. The ISM ticked slightly higher this month, for the third consecutive month. While this does not constitute a trend, this could be the beginning of the bottoming process.

The US manufacturing sector contracted significantly in the month of March, but the nation’s manufacturers cut back on production at a slower pace than expected, according to the Institute of Supply Management’s manufacturing index. The ISM tracks the breadth of growth across firms, asking purchasing managers if business is better this month than last. The PMI came in at 36.3%, up from 35.8% in February. Economists were happy to see this, as a trend may be developing. The PMI rose once again for the third consecutive month, bouncing off its cyclical lows of 32.9% in December. Readings above 50% indicate growth, and anything below, contraction.

The Last 12 Months

Month	PMI		Month	PMI
Mar 2009	36.3		Sep 2008	43.4
Feb 2009	35.8		Aug 2008	49.3
Jan 2009	35.6		Jul 2008	49.5
Dec 2008	32.9		Jun 2008	49.5
Nov 2008	36.6		May 2008	49.3
Oct 2008	38.7		Apr 2008	48.6
Average for 12 months – 42.1 High – 49.5 Low – 32.9

The March new-orders index rose significantly, to 41.2% from 33.1% in February. The production index rose to 36.4% from 36.3%. Both are off multi-decade lows. The employment index rose to 28.1%, from 26.1%.

Inventories (32.2%) were lower for the month, as businesses are trying to de-leverage and clear out excess product.

Norbert Ore, chair of the ISM factory survey committee:

The rapid decline in manufacturing appears to have moderated somewhat, as the PMI remains in the mid-30s for a third consecutive month. While the PMI is slightly higher in March, the New Orders Index offers greater encouragement, as it rose above the 40-percent mark for the first time in seven months. The Production Index showed no benefit as yet from the improvement in new orders, as it continued to decline at a rate similar to March.

“[The data] simply says we’re finding ourselves somewhere near the bottom,” Ore said.

“But survey respondents appear generally pessimistic about recovery in 2009.”

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