Manufacturing Expands In April, Beating Expectations And A Sluggish Economy

Despite a lukewarm economic environment, data from the Institute for Supply Chain Management’s April Report on Business indicates that the sector expanded for the month and beat analyst expectations.

For April, the manufacturing sector expanded to its highest level in nearly a year and beat analyst forecasts of only a slight increase from March.

The Institute for Supply Chain Management’s (ISM) April Report on Business PMI registered 54.7, the highest mark since July 2006. The index measured 50.9 in March and was predicted to inch to 51 for April.

“Manufacturing activity increased in April as the PMI reflects accelerating growth for the month. New Orders and Production improved significantly as did Employment. Manufacturers are now in their ninth month of inventory reduction, so supply chains are generally in balance,” said Norbert J. Ore, C.P.M., chair of the ISM Manufacturing Business Survey Committee. “On the negative side, prices continue to rise at a rapid rate with metals and energy being the areas of greatest concern to buyers.”

New orders, order backlogs, production and employment saw significant increases this month. New orders rose 6.9 points to 58.5, production was up 4.3 to 57.3 and employment was up 4.4 points to 53.1. Backlog of orders increased 7.5 points to 54.5.

According to Ore, wood products saw a surge in employment this month, and the housing and automotive sectors were pushing employment in their respective subindustries. He added that he does not feel this is a long-term trend.

Inventories slipped 1.2 points to 46.3 and the customers’ inventories index was down 1 point to 47. Ore noted that manufacturers had been reducing their inventories over the past five months and the new orders and production increases this month could be an overcorrection of that. The jump in numbers may also be due to the change in the housing and automotive sectors.

For the month, prices rose 7.5 points to 73. Plastics and rubber were among the industries seeing the highest price increases, as they are energy-based and rise with energy costs. Metal fabricators also saw an increase, Ore said, due to increases in prices for nickel copper and aluminum.

“The April 2007 ISM report on manufacturing activity was a positive signal amid uncertainty and weakness in the economy,” said Daniel J. Meckstroth, Chief Economist for the Manufacturers Alliance/MAPI.  “At 54.7 the ISM index is the highest it has been since May 2006.  Orders, production, and backlogs all made substantial improvement over the March levels.  The first look at April 2007 business activity, coming only days after weak first quarter GDP growth was reported, should give forecasters confidence that the deceleration over the last six months was primarily housing-related and that the loss of home equity is not systemically causing a significant deceleration in overall consumer spending.”

Ore echoes Meckstroth’s impression, noting that manufacturing has typically “taken it on the chin” in instances of an economic slowdown, but the sector held its own this month.

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