The Institute for Supply Management (ISM) reported today in its April Manufacturing Report on Business that April Manufacturing output remained in growth mode, despite seeing declines in some of its key metrics.
The report’s key metric, the PMI, dipped 2.5% to 52.8 (a reading of 50 or higher indicates growth), following a 1.1% increase from February to March, a 2.4% decrease from January to February and a 2.3% increase from December to January. While an uneven growth pattern remains intact, the index has seen growth for 32 consecutive months, with the over all economy now having grown for 120 consecutive months. The April PMI reading is 4.4% below the 12-month average of 57.2.
ISM reported that 13 of 18 manufacturing sectors reported over all growth in April, including: Textile Mills; Electrical Equipment, Appliances & Components; Miscellaneous Manufacturing; Printing & Related Support Activities; Chemical Products; Nonmetallic Mineral Products; Plastics & Rubber Products; Machinery; Furniture & Related Products; Food, Beverage & Tobacco Products; Computer & Electronic Products; Paper Products; and Fabricated Metal Products. The five industries reporting contraction in April are: Apparel, Leather & Allied Products; Primary Metals; Wood Products; Petroleum & Coal Products; and Transportation Equipment.
Including the PMI, the majority of the report’s key metrics saw gains in March.
New orders, which are commonly referred to as the engine that drives manufacturing, saw a 5.7% decline to 51.7, following a 1.9% gain in March, while still growing for the 40th consecutive month, with 14 of 18 manufacturing sectors reporting growth.
Production, at 52.3, was down 3.5%, growing for the 32nd consecutive month. ISM said this marks the lowest reading for production going back to August 2016, when it was at 49.6. Employment, at 52.4, decreased 5.1%, growing for the 31st consecutive month, with nine of 18 manufacturing sectors growing. This followed March’s 57.5, which was its highest rating since checking in at 57.7 in November 2018. Prices were off 4.3% to 50 and were flat.
Supplier deliveries, at 54.6 (a reading above 50 indicates contraction) decreased at a slower rate, by 0.4% for the 38th consecutive month. Inventories, at 52.9, rose 1.1%, growing for the 16th consecutive month.
Comments submitted to the report by ISM members showed some concerns that were widely shared, coupled with a theme of generally solid business conditions.
“Business conditions remain largely unchanged,” said an electrical equipment, appliances & components respondent. “There is growing concern about supply chain product flow through the southern U.S. border. Price pressures remain, and inventories continue to grow in preparation for what is expected to be a growth year.”
A computer & electronic components respondent said that Mexico/U.S. border crossing delays are slowing supplier deliveries, adding that tariffs are resulting in increased prices on computer components, as well as manufacturers moving out of China to countries not impacted by tariffs. The respondent added that Brexit is expected to result in delays on moving product through the United Kingdom.
In an interview, Tim Fiore, Chair of the ISM’s Manufacturing Business Survey Committee, said April’s PMI reading represents a stepping down in manufacturing output, which has been apparent over the last few months.
“Over the last four months, there has only been one number over 60, which was production in January, he said. “All of the other numbers, which include ten indexes over four months, for a total of 40, only have one over 60 during that period. On the input side, we are pretty stable, with suppliers delivering exceptionally well, inventories are not growing, and prices are stable. The new orders number was down, which is concerning as it is the lowest number in some time, going back to the beginning of the expansion.”
Looking at demand, Fiore noted it was a positive to see growth for backlog of orders in April, which was up 3.5% to 53.9 and seeing growth for the fourth consecutive month. And customer inventories, down 0.1% to 42.6, remained very low, which indicates there is future demand for production. New export orders saw contraction, down 2.2% to 49.5, after four months of growth.
Looking at the consumption side, which Fiore classifies as production and employment, he said the production number, while low, could have done better because there was limited backlog.
He said that spoke to respondent comments around things like turnaround, maintenance, and downtime, noting that one could make the case that over this 38-month expansion cycle, a fair amount of scheduled maintenance was deferred.
“Many companies probably did not want to do it last year but now would probably be the time to do it,” he said. “On top of that, the employment number was low, and was probably the single biggest contributor to the slowing of the PMI. Not only was the number low but it also drove the production number down, too. There are continual comments about lack of people, paying them appropriately, retention issues, baby boomers retiring now, and generally problems in hiring people. Most of this was driven by employment and there was a new order element, too, on the demand side. A bit of that was driven by new export orders being in contraction mode.”