May 2, 2018

April 2018 ISM Manufacturing: 57.3 Percent, Down from 59.3 Percent in March

Filed under: Economy,Taxes & Government — Tom @ 9:23 am

From the Institute for Supply Management on Tuesday (bolds and most paragraph breaks are mine):

Economic activity in the manufacturing sector expanded in April, and the overall economy grew for the 108th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®.

The April PMI® registered 57.3 percent, a decrease of 2 percentage points from the March reading of 59.3 percent.

The New Orders Index registered 61.2 percent, a decrease of 0.7 percentage point from the March reading of 61.9 percent. The Production Index registered 57.2 percent, a 3.8 percentage point decrease compared to the March reading of 61 percent.

The Employment Index registered 54.2 percent, a decrease of 3.1 percentage points from the March reading of 57.3 percent. The Supplier Deliveries Index registered 61.1 percent, a 0.5 percentage point increase from the March reading of 60.6 percent. The Inventories Index registered 52.9 percent, a decrease of 2.6 percentage points from the March reading of 55.5 percent.

The Prices Index registered 79.3 percent in April, a 1.2 percentage point increase from the March reading of 78.1 percent, indicating higher raw materials prices for the 26th consecutive month.

Comments from the panel reflect continued expanding business strength. Demand remains strong, with the New Orders Index at 60 or above for the 12th straight month, and the Customers’ Inventories Index remaining at low levels. The Backlog of Orders Index continued expanding, with its highest reading since May 2004, when it registered 63 percent.

Consumption, described as production and employment, continues to expand, but has been restrained by labor and skill shortages. Inputs, expressed as supplier deliveries, inventories and imports, declined overall, due primarily to inventory reductions likely led by supplier performance restrictions. Lead time extensions, steel and aluminum disruptions, supplier labor issues, and transportation difficulties continue. Export orders remained strong.

The Prices Index is at its highest level since April 2011, when it registered 82.6 percent. In April, price increases occurred across 17 of 18 industry sectors. Demand remains robust, but the nation’s employment resources and supply chains continue to struggle.

Of the 18 manufacturing industries, 17 reported growth in April, in the following order: Wood Products; Electrical Equipment, Appliances & Components; Fabricated Metal Products; Transportation Equipment; Furniture & Related Products; Paper Products; Machinery; Primary Metals; Nonmetallic Mineral Products; Chemical Products; Computer & Electronic Products; Petroleum & Coal Products; Food, Beverage & Tobacco Products; Plastics & Rubber Products; Printing & Related Support Activities; Miscellaneous Manufacturing; and Apparel, Leather & Allied Products. No industry reported a decrease in PMI® in April compared to March.

The pullback from March shouldn’t be seen as problematic, especially given the continued strength in New Orders and the 14-year record high in Backlog of Orders. The latter figure, as I’ve noted several times in commenting on recent reports, indicates that factories can plan their production over a longer term, and is a very under-appreciated metric. It indicates that we’ve moved back into a relatively predictable economy compared to the turmoil continually seen during the post-recession economy in the Obama era. (Why? The constant threats of regulatory over-reach and intimidation have been minimized, a factor even more important from a planning standpoint than the reduction in the raw volume of government regulations.) Higher known order backlogs should cause factories to achieve economies and efficiencies they couldn’t achieve since before the last recession.

The Prices Paid figure is raising alarms with some. But it only matches a 2011 figure, when inflation wasn’t a problem at all, so I fail to see why that figure has the significance some people are attaching to it.

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