Differing Views on Strength in US Manufacturing Sector for April

Economists and investors just got to see two fresh views on the U.S. manufacturing segment of the economy. The reports have mixed directional data, and while growth remains in the air it may be deemed to be at a less robust rate. The IHS Markit U.S. Manufacturing PMI report came out first, but the ISM Report on Business has tended to be more widely followed by investors and economists.

The IHS report showed that U.S. manufacturing operating conditions improved at the fastest rate since September 2014 and that overall output rose by the quickest pace since January 2017. It also signaled that inflationary pressures continued to intensify.

The seasonally adjusted final U.S. Manufacturing Purchasing Managers’ Index (PMI) rose to 56.5 in April from 55.6 in March. Bloomberg’s PMI consensus estimate was 56.5 and Dow Jones was also calling for 56.5 for April.

The IHS Markit reading showed some change in the employment data from the strength seen in prior months elsewhere. The report suggested that employment growth softened slightly while still remaining strong, with the pace of job creation dipping to an eight-month low. The rate of input price inflation also was shown to have accelerated to the sharpest in almost seven years.

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The Institute for Supply Management (ISM) reported that its key manufacturing index fell to 57.3 in April from 59.3 in March. The drop was more than a full point lower than expected. Bloomberg’s ISM consensus estimate was 58.6, and Dow Jones had a consensus estimate of 58.5.

The long and short of the ISM reading is that new orders, production and employment are all still growing, at a time that supplier deliveries are slowing at faster rate and while order backlogs are growing. Companies are reporting that their raw materials inventories are growing at a time when customer inventories are too low. There is also a continued price pressure as the prices are called increasing at faster rate when both exports and imports are growing.

While the U.S. economy is a services and materials-driven one, direct manufacturing does still account for more than 11% as a whole and it is still used as a broader metric for measuring the strength of the economy. After all, if manufacturing is weak, services are likely to be weak as well.

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