ISM Report on Business: Manufacturing PMI in Contraction Territory in April

Economic activity in the manufacturing sector contracted in April after one month of expansion following 16 consecutive months of contraction, according to the latest Manufacturing ISM Report on Business from the Institute for Supply Management.

“The Manufacturing PMI registered 49.2% in April, down 1.1 percentage points from the 50.3% recorded in March. The overall economy continued in expansion for the 48th month after one month of contraction in April 2020. (A Manufacturing PMI above 42.5%, over a period of time, generally indicates an expansion of the overall economy),” Timothy R. Fiore, chair of the ISM’s Manufacturing Business Survey committee, said. “The New Orders Index moved back into contraction territory after one month of expansion, registering 49.1%, 2.3 percentage points lower than the 51.4% recorded in March. The April reading of the Production Index (51.3%) is 3.3 percentage points lower than March’s figure of 54.6%. The Prices Index registered 60.9%, up 5.1 percentage points compared to the reading of 55.8% in March. The Backlog of Orders Index registered 45.4%, down 0.9 percentage point compared to the 46.3% recorded in March. The Employment Index registered 48.6%, up 1.2 percentage points from March’s figure of 47.4%.”

“The Supplier Deliveries Index figure of 48.9% is 1 percentage point lower than the 49.9% recorded in March. (Supplier Deliveries is the only ISM Report On Business index that is inversed; a reading of above 50% indicates slower deliveries, which is typical as the economy improves and customer demand increases.) The Inventories Index registered 48.2%, the same reading as in March,” Fiore said. “The New Export Orders Index reading of 48.7% is 2.9 percentage points lower than the 51.6% registered in March. The Imports Index continued in expansion territory, registering 51.9%, 1.1 percentage points lower than the 53% reported in March and February. In the last three months, the Imports Index has been at its highest levels since July 2022 (54.4%).”

“The U.S. manufacturing sector dropped back into contraction after growing in March, the first time since September 2022 that the sector reported expansion. Although demand improvement slowed, output remains positive and inputs stayed accommodative. Demand softening was reflected by the (1) New Orders Index dropping back into contraction, offset by fewer comments regarding ‘softening,’ (2) New Export Orders Index indicating contraction after two months of expansion, offset by panelists’ more optimistic comments, (3) Backlog of Orders Index remaining in moderate contraction territory, dropping back slightly compared to March, and (4) Customers’ Inventories Index at the ‘just right’ level, neutral for future production,” Fiore said. “Output (measured by the Production and Employment indexes) moderated compared to March, with a combined 2.1-percentage point downward impact on the Manufacturing PMI calculation. Panelists’ companies slightly increased their production levels month over month, and head-count reductions continued (but showed signs of easing) in April. Inputs — defined as supplier deliveries, inventories, prices and imports — continued to accommodate future demand growth. The Supplier Deliveries Index dropped marginally, continuing in ‘faster’ territory, and the Inventories Index was flat (the same reading as in March) and in slight contraction territory. The Prices Index moved further upward into strong expansion (or ‘increasing’) territory, as commodity driven costs continue to climb. Imports continued to grow, at a slower rate in April.”

“Demand remains at the early stages of recovery, with continuing signs of improving conditions. Production execution continued to expand in March, but at a slower rate of growth than in prior months,” Fiore said. “Suppliers continue to have capacity but work to improve lead times, due to their raw material supply chain disruptions. 34% of manufacturing gross domestic product (GDP) contracted in April, up from 30% in March. More importantly, the share of sector GDP registering a composite PMI calculation at or below 45% — a good barometer of overall manufacturing weakness — was 4% in April, higher than the 1% figure in March, but an indication of better health than the 27% recorded in January. Among the top six industries by contribution to manufacturing GDP in April, none had a PMI at or below 45%.”

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