Optimism amid slower growth in manufacturing

The Institute for Supply Management (ISM) released its March PMI* reading on April 1, coming in at 51.5. This reading indicates a mild expansion, marking the 27th consecutive month of growth within the manufacturing sector. Of the 18 manufacturing industries included in the data, 10 reported some degree of growth.

The March number rounds out the first quarter of 2015, posting a decline from the PMI's average reading during the fourth quarter of 2014 — but remaining in expansionary territory. This is not a surprise to us. We have been expecting the data to stay relatively tempered, as several challenges to the U.S. economy have refused to let up, including the lingering effects of a severe winter, continued strength of the U.S. dollar, and strikes by labor unions at ports along the West Coast. What’s more, a good portion of companies reflected in the ISM data are in the Midwest industrial regions, which have been negatively affected by lower energy prices.

Looking ahead, we expect manufacturing trends to benefit from the growing U.S. economy. The combination of lower input costs, an adequate supply of skilled labor, a mature logistics system, and regulatory stability has made U.S. manufacturing increasingly viable versus overseas competitors. This view reinforces our overweight positions to the more economically sensitive sectors in our portfolios like capital spending and basic materials.


*The Purchasing Managers’ Index measures the economic strength of the U.S. manufacturing sector.

The views expressed represent the Manager's assessment of the market environment as of April 7, 2015, and should not be considered a recommendation to buy, hold, or sell any security, and should not be relied on as research or investment advice. Views are subject to change without notice and may not reflect the Manager's views.

Investing involves risk, including the possible loss of principal.

Past performance does not guarantee future results.

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