Economic activity in the manufacturing sector expanded in April, and the overall economy grew for the 108th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business.
Manufacturing expanded in April as the PMI registered 57.3 percent, a decrease of 2 percentage points from the March reading of 59.3 percent. This indicates strong growth in manufacturing for the 20th consecutive month, led by continued expansion in new orders, production activity, employment and inventories, with suppliers continuing to struggle delivering to demand. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.
Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management (ISM) Manufacturing Business Survey Committee states, “The past relationship between the PMI and the overall economy indicates that the PMI for April (57.3 percent) corresponds to a 4.3 percent increase in real gross domestic product (GDP) on an annualized basis.”
A PMI above 43.2 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the April PMI indicates growth for the 108th consecutive month in the overall economy and the 20th straight month of growth in the manufacturing sector.
Orders, Production and Inventory
The Inventories Index registered 52.9 percent in April, which is a decrease of 2.6 percentage points when compared to the 55.5 percent reported for March, indicating raw materials inventories grew in April. ISM’s Customers’ Inventories Index registered 44.3 percent in April, which is 2.3 percentage points higher than the 42 percent reported for March, indicating that customers’ inventory levels were still considered too low in April.
“Suppliers were not able to maintain desired inventory expansion levels consistent with production demands for the second straight month. Broad supplier lead-time extensions and freight uncertainties will continue to impact inventory accounts,” says Fiore.
ISM’s New Orders Index registered 61.2 percent in April, which is a decrease of 0.7 percentage point when compared to the 61.9 percent reported for March, indicating growth in new orders for the 28th consecutive month.
“New orders expansion continues at a strong pace — slower compared to March’s reading, but still at or above 60 percent for the 12th straight month. Customer inventories remain too low, and backlog expansion maintained high levels,” adds Fiore. A New Orders Index above 52.4 percent, over time, is generally consistent with an increase in the Census Bureau’s series on manufacturing orders (in constant 2000 dollars).
ISM’s Production Index registered 57.2 percent in April, which is a decrease of 3.8 percentage points when compared to the 61 percent reported for March, indicating growth in production for the 20th consecutive month.
“Production expansion continues; however, the index fell below 60 for the first time in 10 months. Labor constraints and supply chain disruptions continue to prevent or limit maximum production potential,” says Fiore. An index above 51.5 percent, over time, is generally consistent with an increase in the Federal Reserve Board’s Industrial Production figures.
ISM’s Backlog of Orders Index registered 62 percent in April, which is 2.2 percentage points higher than the 59.8 reported in March, indicating growth in order backlogs for the 15th consecutive month. Backlog expansion continued during the period, with the index reaching its highest level since May 2004, when it registered 63 percent. Strong backlog, low levels of customer inventory and continued strong new order expansion indicates that production requirements should remain robust through Q2.
The Inventories Index registered 52.9 percent in April, which is a decrease of 2.6 percentage points when compared to the 55.5 percent reported for March, indicating raw materials inventories grew in April.
“Suppliers were not able to maintain desired inventory expansion levels consistent with production demands for the second straight month. Broad supplier lead-time extensions and freight uncertainties will continue to impact inventory accounts,” explains Fiore. An Inventories Index greater than 43 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).
Exports, Imports and Prices
ISM’s New Export Orders Index registered 57.7 percent in April, a decrease of 1 percentage point when compared to the 58.7 percent reported for March, indicating growth in new export orders for the 26th consecutive month.
ISM’s Imports Index registered 57.8 percent in April, a decrease of 1.9 percentage points when compared to the 59.7 percent reported for March, indicating that imports grew in April for the 15th consecutive month.
The ISM Prices Index registered 79.3 percent in April, an increase of 1.2 percentage points from the March level of 78.1 percent, indicating an increase in raw materials prices for the 26th consecutive month. In April, 61.2 percent of respondents reported paying higher prices, 2.6 percent reported paying lower prices, and 36.2 percent of supply executives reported paying the same prices as in March. The Prices Index is at its highest level since April 2011, when it registered 82.6 percent.
“The increases in prices across all industry sectors continues. The Business Survey Committee noted price increases in metals (all steels, steel components, aluminum and copper), corrugate, wood, wood products and plastics. Shortages continue in electronics components,” says Fiore. A Prices Index above 52.4 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Producer Price Index for Intermediate Materials.
Employment
ISM’s Employment Index registered 54.2 percent in April, a decrease of 3.1 percentage points when compared to the March reading of 57.3 percent. This indicates growth in employment in April for the 19th consecutive month.
“Employment expansion continues at slower rates due to companies struggling to hire skilled workers. Many respondents continue to see the labor market as a constraint to their production and their suppliers’ production,” says Fiore.
An Employment Index above 50.8 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.
The monthly Manufacturing ISM Report on Business is based on the survey results of approximately 350 professionals across 18 different industry sectors. The report is released on the first business day of each month and features the PMI Index as its key measure. For more information on the Institute for Supply Management, visit www.ism.ws.
