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Manufacturing Grows At Slower Pace In April

Wed, 05/01/2013 - 11:19am
Christopher S. Rugaber, AP Economics Writer

WASHINGTON (AP) -- U.S. factory activity expanded at a slower pace in April, held back by weaker hiring and less company stockpiling. The report is the latest sign that economic growth may be slowing this spring.

The Institute for Supply Management said Wednesday that its index of manufacturing activity slipped to 50.7 last month. That's down from 51.3 in March and the slowest pace this year. A reading above 50 indicates expansion.

A measure of hiring fell sharply to 50.2, the lowest level since November. That suggests factories cut jobs again in April. And manufacturers cut back on stockpiling for the second straight month.

The ISM's employment gauge hasn't been a reliable indicator in recent months: It reached a nine-month high in March, conflicting with government data that reported factories shed 3,000 jobs.

Despite the decline in the pace of growth, economists noted that the survey still shows that manufacturing expanded for the fifth straight month. And there were some positive signs in the report.

A measure of production and new orders rose. More new orders indicate companies may have to rebuild their stockpiles in the coming months. Order backlogs grew at a faster pace. Higher orders points to more factory output in the coming months.

"This is not a slump, just more slow growth," John Silvia, chief economist at Wells Fargo Securities, said.

Still, slower growth in manufacturing suggests some companies may be worried about across-the-board government spending cuts that began on March 1. The survey noted that one company tied to the defense industry mentioned that cuts had weakened its business in April.

The decline follows a report on last week that said businesses slowed their investment in facilities and equipment in the first quarter.

A recession in the 17 European Union countries that use the euro and weaker global growth threaten demand for U.S. exports. A measure of export orders in the ISM survey grew at a slower pace in April.

Factories may also see slower sales this spring because consumers are starting to feel the impact of higher Social Security taxes. Americans increased their spending from January through March at the fastest pace in more than two years. But spending on goods fell in March, a sign that the tax increase may be catching up with consumers.

Consumers are more optimistic that the job market is healing and will deliver higher pay later this year, according to a survey of April consumer confidence released Tuesday. And lower gas prices could offset some of the pinch from the tax increase.

One area of manufacturing that remains strong is auto production: Ford, GM, Chrysler and Nissan all reported double-digit U.S. sales increases last month, signaling the best April for car and truck sales in six years.

Still, factories cut jobs in March after five months of hiring. And manufacturing output declined in March, the Federal Reserve said earlier this month, despite a jump in auto production.

The economy grew at an annual rate of 2.5 percent from January through March, the government said last week. That was an improvement from the anemic growth of 0.4 percent in the final three months of last year. Most economists expect growth will slow in the current quarter and remain subpar for most of the year.


Daniel J. Meckstroth, Chief Economist for the Manufacturers Alliance for Productivity and Innovation (MAPI), has weighed in:

“The Institute for Supply Management (ISM) index was 50.7 in April, down 0.6 percentage points from 51.3 in March. Fifty percent is the dividing line between growth and decline and the larger the number the better. At 50.7, the indicator suggests that manufacturing activity is barely growing. Over the last 20 years, the ISM index has been at or below 50.7 one-third of the time.

“Employment in manufacturing has come to a halt and inventory cutting is underway to bring production in line with shipments,” he added. “The ISM report points out that imports are growing faster than exports. Because U.S. manufacturing imports are substantially larger than exports, the trade impact on domestic manufacturing is now decidedly negative.

“Manufacturing activity was relatively strong in the first three months of this year, led by pent-up demand for motor vehicles and the housing rebound,” Meckstroth concluded. “Some of the production growth came from unwanted inventory accumulation; manufacturers are now in the process of adjusting inventories back down, leading to a soft patch in industrial activity that may persist for a few months. The fundamentals, however, point to moderate 3 percent manufacturing industrial production growth this year—slightly faster than the overall economy, but not much.”

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