ISM manufacturing data sees a slight gain in April

A mixed bag may be the most appropriate way to characterize the current state of manufacturing based on the most recent edition of the April edition of the Manufacturing Report on Business issued by the Institute for Supply Management (ISM) today.

The PMI, the ISM’s index to measure growth, was flat compared to March at 51.5 (a PMI of 50 or greater represents growth), snapping a five-month stretch of sequential declines, which had been in effect since reaching 57.9 in October 2014. The PMI is 3.7 percent below its 12-month average of 55.2 and remains at its lowest level since checking in at 50.1 in May 2013.

The report noted that that economic activity in the manufacturing sector has grown for 28 straight months, while the overall economy has shown growth for the last 71 months.

Including the PMI, one of the report’s four key metrics was flat in April, with two seeing gains and one declining.

New orders, referred to as the engine that drives manufacturing, headed up 1.7 percent to 53.5, growing for the 29th consecutive month, and production saw a 2.2 percent uptick at 56.0, showing growth for the 32nd month in a row. Employment was the lone metric with a decrease, down 1.7 percent to 48.3, which is its lowest level since dropping to 47.8 in September 2009.

Of the 18 sectors reporting into the ISM, 15 reported growth in April.

Comments selected for the report submitted by ISM member respondents had a generally positive tone. A primary metals respondent noted that “production and orders remain strong and steady,” and a miscellaneous manufacturing respondent said that business conditions are good, with slowly rising demand. The impact of the West Coast port labor dispute appears to be intact, as a computer and electronics respondent explained that international shipments are still being delayed by the strikes at West Coast ports.

“There are lots of positives in this report,” said Brad Holcomb, chair of the ISM Manufacturing Survey Business Committee, in an interview. “Even with a flat PMI, I like this month’s better than March’s, because we have a broader spread of growth, with 15 industries reporting growth in April compared to ten in March. New orders also are up, with 11 companies reporting order growth compared to nine in March, and 13 citing production growth, ahead of nine in March.”

And even though employment was down in April, 11 sectors reported growth, whereas seven reported growth in March.

Holcomb said that the employment decline represents a bit of a pause in the action, with the first four months of the year being somewhat slower than expected on the employment front.

“We still have good employment levels and over the past few years there have only been a few excursions below 50 and then it comes right back up,” noted Holcomb. “If history repeats itself, we are going up from here.”

Correlating the current PMI levels with U.S. GDP, Holcomb said that from January through April, the average PMI of 52.4 corresponds to a 2.9 real increase in GDP, with April alone at 2.6 in real GDP.

Supplier deliveries in April slowed at a faster rate, falling 0.4 percent to 50.1, dealing with the aftereffects of the West Coast port slowdown, and inventories were flat at 49.5.