The Institute for Supply Management’s (ISM) Manufacturing Purchasing Managers’ Index (PMI) expanded for the second straight month, albeit at a slower pace in April. The composite index declined from 51.8 in March to 50.8 in April, but even with the decrease, this represented progress in the manufacturing sector after contracting for five consecutive months from October through February. New orders (down from 58.3 to 55.8) and production (down from 55.3 to 54.2) each grew at decent rates for the month despite some easing in this release, and exports (up from 52.0 to 52.5) accelerated, increasing for only the third time in the last 12 months.
Last month’s release helped to fuel the narrative that manufacturing activity was starting to stabilize, and the current data mostly support that view. At the same time, though, manufacturers remain challenged by global headwinds and still-low commodity prices, and a number of economic indicators have been disappointing, highlighting the fact that business’ struggles are still far from over. The sample comments tended to echo this nuanced view of modest improvements, with some respondents noting a pickup in sales while others cited ongoing sluggishness. One’s perspective was likely industry-specific.
Employment (up from 48.1 to 49.2) declined at a slower pace in April, but more importantly, hiring has now contracted for five straight months (or six of the past seven months). With continued progress, we would expect for firms to begin to add to their workforces moving forward, but that has not happened yet. Look for better job growth in the months to come, particularly if manufacturers are truly seeing better demand and production growth. Meanwhile, inventories (down from 47.0 to 45.5) contracted for the 10th consecutive month. The silver lining is that this could provide a stimulative effect for growth in the coming months, as manufacturers will need to increase production to meet additional demand, with stockpiles quite low.
Input prices (up from 51.5 to 59.0) accelerated in April. The increase – only the second one in the past 17 months – likely came from somewhat higher commodity prices, including energy costs. Nonetheless, manufacturers have largely benefited from reduced pricing pressures over the past year or so, and this increase was expected.