The Institute for Supply Management’s (ISM) purchasing managers’ index declined from 51.3 in March to 50.7 in April. While the manufacturing sector continued to expand for the fifth straight month, it is clear that this expansion is very slow right now. Similar trends have been seen in the regional sentiment surveys, with some indicating declining levels of activity, and the latest U.S. PMI data from Markit, which was also released this morning, indicated a significant level of weakness.
The various subcomponents of the ISM report were mixed. One of the weaker factors was employment, with the jobs index dropping from 54.2 to 50.2. This suggests that job growth is essentially flat, with hiring stalled at least for now. Inventories also contracted further, down from 49.5 to 46.5. We saw this in yesterday’s ISM-Chicago report, as well. Once new orders pick up the pace significantly, production will need to accelerate to meet demand, particularly with low stockpiles of goods.
The pace of sales accelerated somewhat for the month, with its index up from 51.4 to 52.3, suggesting modest orders growth overall. The pace of production also grew slightly. This trend that was supported by the sample comments, such as the computer and electronics manufacturers who said that there was a “slight uptick in business.” At the same time new export orders decelerated slightly, down from 56.0 to 54.0. The good news regarding the trade numbers was the fact that export sales continue to grow, even if the pace is marginally slower.
The other key data point of note was the pricing measure. The index for the price of raw materials dropped from 54.5 (modest growth) to 50.0 (neutral). With lower energy and commodity costs, pricing pressures have definitely lessened over the past couple months. This index had been 61.5 in February, for instance.
As noted earlier, these findings were somewhat similar to the report issued by Markit. The U.S. Markit Manufacturing PMI decreased from 54.6 in March to 52.1 in April. This is its lowest level since last October, and it was driven by a much slower pace of growth for new domestic orders. The U.S. sales index dropped from 55.4 to 51.5, with new exports unchanged. Growth in output, employment, and inventories eased in the month.
Today’s report is disappointing and shows that manufacturers are experiencing significant weaknesses in the marketplace right now. The slow growth of manufacturing is adding to the anxieties for businesses and concerns about the strength of the U.S. economy. The pace of hiring has slowed, and is essentially stalled. This was seen in the ADP numbers released this morning, as well. With the manufacturing stuck in neutral we must see action from Washington on pro-growth policies that will enable manufacturers to grow and hire again. Unless lawmakers and the administration take action we will continue to see disappointing numbers for growth and jobs.
Chad Moutray is chief economist, National Association of Manufacturers.
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