US: The Manufacturing Sector Slows Down

May 03 21, 14:57 GMT

The April ISM manufacturing index dropped to 60.7, well below market expectations for 65. This marked a 4.0 percentage points decrease from the March reading of 64.7.
New orders decreased by 3.7 percentage points to 64.3, while new export orders went up by 0.4 percentage points to 54.9. The backlog of orders sub-index came at 68.2, a 0.7 percentage points jump compared to March.
Consumption – measured by production and employment sub-indices – subtracted from the headline. Put together, the production (-5.6) and employment (-4.5) sub-indices dropped 10.1 percentage points.
The supplier deliveries sub-index dropped to 75.0 from 76.6 in March. The sub-index continues to reflect difficulties in maintaining delivery rates due to production issues related to the pandemic.
All 18 manufacturing industries reported growth in April. The growth was led by Electrical Equipment, Appliances & Components and Textile Mills.

Key Implications

The overall economy registered the eleventh consecutive month of growth. After last month’s biggest jump since the pandemic’s onset, manufacturing activity has cooled. The slowdown in activity was broad-based with production, employment and imports registering the biggest declines compared to March. Meanwhile, the jump in backlog of orders continues to show supply struggling to catch up with demand.
The manufacturing sector’s expansion continues, albeit at a slower rate. Companies and suppliers are struggling to meet the rising demand due to pandemic related restrictions and limited availability of manufacturing inputs. These shortages, along with rising commodity prices and difficulty in transporting goods are impacting all segments of the manufacturing sector. Meanwhile, the labor market is still weak and businesses are continuing to hold back on investment amidst still-elevated uncertainty. The recent slowdown in vaccine administration isn’t likely to help either as it would delay reopenings in certain states. Moreover, the sector continues to remain vulnerable to another wave of cases and new variants.