The Institute for Supply Management (ISM) said that manufacturing activity continued to expand modestly in April, even as it pulled back for the second straight month from February’s best reading since May 2004. The ISM Manufacturing Purchasing Managers’ Index (PMI) declined from 60.8 in February to 59.3 in March to 57.3 in April, its lowest level since July 2017. Softer production (down from 61.0 to 57.2), exports (down from 58.7 to 57.7) and employment (down from 57.3 to 54.2) growth help to explain the softer headline number in April. The exports figure eased for the second consecutive month, down from the February rate, which had been the fastest since April 2011.
Despite some weakening in other measures, new orders (down from 61.9 to 61.2) decelerated slightly but remained robust overall, which was encouraging. To illustrate just how strong demand has been in the manufacturing sector, it was the 12th straight month with the new orders index at 60 or higher—a threshold that would suggest robust sales growth. The sample comments tend to echo that finding, with respondents noting healthy growth in activity and a promising outlook, even as they cite some trade worries.
With ever-stronger economic growth, manufacturers report accelerated input costs. Indeed, prices for raw materials (up from 78.1 to 79.3) have remained highly elevated, with the measure at a level not seen in seven years. More than 61 percent of manufacturing respondents said that their costs had risen in April, with just 2.6 percent suggesting that they were lower. This reflects a rebound in some commodity costs, even as overall pricing pressures continue to be largely modest, at least for now.
In other news, inventories (down from 55.5 to 52.9) expanded in April for the fourth straight month, even as the pace of growth slowed from February’s near eight-year high. More than anything, the recent growth in inventories is consistent with the healthy growth in overall production.
The Bureau of Labor Statistics reported that hiring in the manufacturing sector rose in February to its best reading since November 2007, according to the latest Job Openings and Labor Turnover Survey data. The manufacturing sector hired 380,000 workers in February, up from 360,000 in January. That reflected stronger activity for both durable (up from 212,000 to 215,000) and nondurable (up from 149,000 to 165,000) goods businesses. At the same time, total separations—including layoffs, quits and retirements—rose from 343,000 to 352,000, a level not seen since May 2009.
As a result, net hiring (or hires minus separations) rose from 17,000 in January to 28,000 in February, a four-month high. More importantly, however, net hiring has averaged a rather healthy 16,417 over the past 12 months, with a robust average of 25,142 over the past seven months.
Meanwhile, there were 426,000 manufacturing job openings in February, inching up from 424,000 in January. That was the strongest reading since September (445,000), which was a pace not seen since January 2001. In fact, the job postings rate in February was only the sixth time since the indicator started in December 2000 that openings have exceeded 400,000. In the latest figures, nondurable goods firms posted more jobs in February (up from 152,000 to 158,000), which was just enough to offset a slightly slower pace of openings for durable goods manufacturers (down from 273,000 to 269,000).
The pace of job openings has continued to trend higher overall. For comparison purposes, monthly job openings in the sector averaged 389,667 in 2017, up from 341,250 in 2016. Moving forward, renewed strength for job openings would be anticipated in the coming months.
Turning to the larger economy, job openings for nonfarm payroll businesses dropped from 6,228,000 in January to 6,052,000 in February. January’s rate was the second highest in the survey’s history, narrowly edged out by the 6,231,000 openings in September. In the latest data, job openings increased in financial activities, government, health care and social assistance, information, manufacturing and other services sectors. At the same time, net hiring among nonfarm businesses continued to be very solid, at 255,000 and 315,000 in January and February, respectively.
ADP reported that manufacturers added 29,000 workers in March, the fastest monthly growth in employment in the sector since October 2014. This once again illustrates the robustness of the labor market in light of strong increases in manufacturing activity and improvements in the overall outlook. Indeed, manufacturing business leaders have hired at a healthy rate since the end of 2016, averaging nearly 15,700 per month over the past 15 months. In contrast, manufacturing employment was more sluggish in 2016, illustrating the turnaround in the labor market since then. More importantly, continued strength in job growth is expected moving forward. Read More