- The Institute for Supply Management (ISM) manufacturing index shed 2.5 points to 52.8 in April, a worse outturn than the consensus view that called for a relatively steady 55.
- Three of the five subcomponents that comprise the headline index drove April’s decline. New orders led the way lower, shedding 5.7 points to 51.7. Employment almost fully reversed March’s surge higher, dropping 5.1 points leaving the index at 52.4. Production declined 3.5 points to 52.3. In contrast, inventories improved (+1.1 to 52.9), as did supplier deliveries (+0.4 to 54.6).
- The trade components of the report weakened for the second consecutive month, with both dipping into contraction. New export orders dropped 2.2 points to 49.5, and import orders shed 1.3 points to leave the index at 49.8. Export orders last contracted in February of 2016, while import orders last contracted in January of 2017.
- Keeping with the decelerating theme, prices paid (not seasonally adjusted) fell 4.3 points to 50 – on the edge of contraction. Since November, declining price pressures have reflected lower prices of aluminum and steel products (prices have now normalized near pre-tariff levels), and crude oil/gas.
- Thirteen of eighteen manufacturing industries reported growth in April, down from sixteen in March. Apparel, leather, and allied products, primary metals, wood products, petroleum and coal products, and transportation equipment were the five industries that reported a contraction in the month.
Key Implications
- Manufacturing industry output has been lumpy since the middle of last year, but today’s report suggests that activity has softened more than expected. In fact, although U.S. manufacturing output continues to expand, April’s print is the slowest pace of expansion since October 2016. That said, comments from survey respondents suggest that Mexican border delays may have contributed to weaker activity in April. Respondents also say that the inventory build is due to expectations of a pickup in orders later this year, as many are optimistic about the demand outlook, both domestic and abroad. There’s also some concern voiced about tariffs acting to boost prices and contributing to component shortages, while Brexit may be a factor that could delay shipments through the UK. Aluminum products and electronic component shortages continue, and the shortage of skilled labor is a key concern in the machinery industry.
- All told, today’s report highlights how the U.S. manufacturing sector continues to face challenges. However, activity elsewhere appears to have continued to stabilize in April. Although China’s manufacturing sector weakened a touch as new export orders faded, it remained in expansion territory for the second consecutive month. Although April’s flash PMIs for Europe signaled that manufacturing activity in the region is still struggling to regain momentum after contracting for several months (final April PMIs for the region and most of the world will be published tomorrow morning), some regions are showing a pickup in output. Key to the recovery in global manufacturing sector in the months ahead will be ongoing progress in U.S. trade talks with China, while also avoiding a broadening of trade tensions with other trade partners.
