ISM report shows backlogs contracting, production growing
Economic activity in the manufacturing sector contracted in April after one month of expansion following 16 consecutive months of contraction, say the nation’s supply executives in the latest Manufacturing ISM Report On Business.
The report was issued today by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management (ISM) Manufacturing Business Survey Committee:
“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.) 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 percent.
“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.
“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%).”
Fiore continues, “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. 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. Suppliers continue to have capacity but work to improve lead times, due to their raw material supply chain disruptions. Thirty-four%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-percent 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%,” says Fiore.
The nine manufacturing industries reporting growth in April — in order — are: Nonmetallic Mineral Products; Printing & Related Support Activities; Primary Metals; Textile Mills; Electrical Equipment, Appliances & Components; Petroleum & Coal Products; Transportation Equipment; Chemical Products; and Plastics & Rubber Products. The seven industries reporting contraction in April — in the following order — are: Miscellaneous Manufacturing; Machinery; Furniture & Related Products; Wood Products; Food, Beverage & Tobacco Products; Fabricated Metal Products; and Paper Products.
WHAT RESPONDENTS ARE SAYING
• “Conditions are improving as demand is starting to recover. Costs continue to be a major concern as suppliers that rapidly increased prices in the follow-up from COVID-19 are slow to return to pre-pandemic levels.” [Chemical Products]
• “Sales continue to exceed expectations in 2024. The forecasted dip in commercial vehicle production volumes appears to be avoided. Operational output is still strong, and the supply chain has the capacity to support. International supply chain risks have been minimized, but the frequency of supplier insolvencies or bankruptcies appears to be increasing.” [Transportation Equipment]
• “Order flow has stabilized. It took some customers longer to replenish their supply chain network after the fourth-quarter rush we commonly have. Order rates are expected to remain stable through August.” [Food, Beverage & Tobacco Products]
• “Some small indications of market improvement in China for our instruments and technology. Recovery is still slower than we had hoped, and macroeconomic uncertainty remains in Europe and the Middle East, as well as domestically in the U.S. with ongoing inflationary pressures and anticipation for the (upcoming) election.” [Computer & Electronic Products]
• “Market conditions have definitely softened. Thankfully, our backlog is strong and will get us through the year. When conditions improve as expected later this year, we will be in a good position to continue building the business. We are a manufacturer of automated packaging equipment for the food and beverage industry, and with a continued shortage of workers, our customers are requiring more and more automation.” [Machinery]
• “Business is slowing down — it has been a gradual decline for the last several months. We are not seeing new orders at last year’s level, or at this year’s budgeted levels.” [Fabricated Metal Products]
• “There has been a lot of volatility in sales. On average, our sales look flat, but the volatility is concerning.” [Electrical Equipment, Appliances & Components]
• “Business remained strong through the first quarter and has started strong for the second quarter. Commercial construction is still going well but on a regional basis, with the Southeast the strongest.” [Nonmetallic Mineral Products]
• “The major factor affecting our business is the uncertainty of the Federal Reserve’s handling of interest rates, which will affect our customers’ businesses, thereby affecting ours.” [Plastics & Rubber Products]
• “Business is stable, and orders have been consistent. We’re quoting new business for the factory, and automotive builds continue at averages but not near maximum outputs. Workforce is stable, with the turnover ratio dropping considerably. Salaries and hourly rates increasing to meet inflationary pressures.” [Primary Metals]
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