ISM April manufacturing report shows growth remains in positive territory

The Institute for Supply Management (ISM) reported today that manufacturing activity for April remained in growth territory despite a relatively minimal gain in its core index, known as the PMI.

The PMI, the index used by the ISM to measure manufacturing activity—at 50.7 in April—was 0.7 percent below March’s 51.3 and 5.1 percent below February’s 54.2 which represents the highest PMI reading since June 2011s 55.8. A reading of 50 or higher indicates growth is occurring, and the PMI has now been over the 50 mark for the last five months. April’s PMI was 0.7 percent below the 12-month average of 51.4.

Economic activity in the manufacturing sector had expanded for 34 straight months prior to contraction in June 2012, with growth occurring over the last five months, and overall economic activity has now expanded for 47 straight months, according to ISM.

A look at some of the report’s key metrics shows a bit of a “mixed bag” in April. New Orders, which are commonly referred to as the engine that drives manufacturing, were up 0.9 percent, following a 6.4 percent drop in March, and Production was up 1.3 percent to 53.5. Employment dropped 4.0 percent to 50.2.

“Even with some of these metrics down, there was decent growth, when looking at New Orders, Production, Backlog of Orders (up 2.0 percent to 53.0), and Imports (up 1.0 percent to 55.0),” said Bradley J. Holcomb, CPSM, CPSD, chair of the ISM Manufacturing Business Survey Committee, in an interview.

Holcomb echoed what he said last month in that while the PMI is at a lower level, growth is still occurring.

Inventories in April dropped 3.0 percent to 46.5. Among the inventories coming in higher in April were Wood Products, Plastics & Rubber Products, and Furniture & Related products in the top three, with Apparel, Leather & Allied Products, and Primary Metals leading inventory declines.

Raw materials inventory levels weighed down the PMI to a degree, said Holcomb, coupled with a 4.5 percent decline in Prices to 50.0.

ISM member comments in this month’s report showed a solid amount of optimism when it came to the health of the manufacturing sector. A machinery respondent stated that business continues at a steady pace, and a transportation equipment respondent noted that general business conditions and industrial markets remain strong.

And sectors like automotive and housing are also showing growth, which, in turn, bodes well for manufacturing, said Holcomb.

“In the housing sector, we are seeing that wood products are contracting, with customers having too much inventory in anticipation of building many more houses…and have come to a point where labor shortages have at least temporarily slowed down the housing expansion, but we think it is temporary,” he said.