U.S. manufacturing contracts for third straight month

High prices continue to pinch U.S. manufacturers as orders and production rates decline

Staff -- Logistics Management, 5/2/2008

The U.S. manufacturing sector contracted for the third consecutive month in April as manufacturers contended with high commodity prices. That’s according to a report released today by the Institute for Supply Management (ISM).

The ISM’s manufacturing index—known as the PMI—registered 48.6% last month, the same as in March. (A reading above 50% indicates that the manufacturing economy is generally expanding; below 50% indicates that it is generally contracting.)

“Manufacturers are in a situation where both new orders and production are slowly declining, but prices continue to rise at highly inflationary rates,” says Norbert Ore, chair of the ISM Manufacturing Business Survey Committee.

The ISM Prices Index registered 84.5% in April, indicating manufacturers are paying higher prices on average when compared to March. This is the highest reading for the index since it registered 86% in May 2004. Methanol was the only commodity reported down in price.

Comments from ISM survey respondents illustrate the price pain manufacturers are feeling:

“The decline in the value of the dollar is dramatically affecting our material prices because we purchase over half of our material requirements from overseas,” says a manufacturer of transportation equipment.

From a mineral products company: “Higher energy rates, unfavorable exchange rates, high levels of inflation in Asia and a drop in demand are challenging our business and supply chain.”

A fabricated metal manufacturer simply has this to say: “Oil, oil, oil, energy, energy, energy, metals, metals, metals.”

Bright spots this month for manufacturers, says Ore, are growth in the Backlog of Orders Index, a reduction in customers’ inventories and continued strength in new export orders. April was the 65th consecutive month of growth in export orders.