Manufacturing Growth Sees Substantial Softness

After much better-than-expected gross domestic product growth of 3.2% for the first quarter, economists and investors alike are looking for any clues about how the broad economy is doing, as we are now a full month into the second quarter of 2019. The Institute for Supply Management has released its Manufacturing ISM Report on Business, showing that economic activity expanded in the manufacturing sector in April. The overall economy also was shown to have grown for the 120th consecutive month, making it a 10-year streak.
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While the report shows another month of growth, the growth rate slowed from March’s 55.3 reading down to 52.8 in April. The Wall Street Journal had published a consensus economist projection that the manufacturing index would show only a micro-drop down to 55.0 in April. What should stand out is that the growth seen here was noted as the softest level since the end of 2016.

There were some rather large drops within the major aspects of the manufacturing data. All the major components were still representative of growth in April, but the New Orders Index fell by a sharp 5.7 points to 51.7%. The Production Index fell by 3.5 points to 52.3%, and even the Employment Index fell by 5.1 points to 52.4%.

The Prices Index, closely watched for wholesale inflation, fell by 4.3 points, down to just 50.0%, and was barely above what historically has been considered to be the breakeven line.

There were some areas where the slowing was not seen. The Supplier Deliveries Index fell by only 0.4 points to 54.6% and the Inventories Index rose by 1.1 points up to 52.9%. The Backlog of Orders Index rose to 53.9% in April from 50.4% in March.

ISM Chair Timothy R. Fiore commented from the ISM Report on Business for April:

Comments from the panel reflect continued expanding business strength, but at the softest levels since the fourth quarter of 2016. Demand expansion continued, with the New Orders Index softening to the low 50s, the Customers’ Inventories Index remaining at a ‘too low’ status, and the Backlog of Orders Index improving its prior month performance. Consumption (production and employment) continued to expand, but at lower levels, resulting in a combined decrease of 8.6 points. Inputs — expressed as supplier deliveries, inventories and imports — were higher this month, primarily due to inventory growth exceeding consumption, resulting in a combined 1.5-percentage point improvement in the Supplier Deliveries and Inventories Indexes. Imports contracted during the period. Overall, inputs reflect a more stable business environment, confirmed by the Prices Index at zero price growth, or unchanged… Exports orders contracted for the first time since February 2016. The PMI trade elements are in contraction territory. The PMI® has been inching down since November 2018. The manufacturing sector is expanding, but at recent historic lows,” says Fiore.

All in all, 13 of the 18 manufacturing industries reported growth in April. The following five industries reported contraction in April:

• Apparel, leather and allied products
• Primary metals
• Wood products
• Petroleum and coal products
• Transportation equipment

On last look, the Dow Jones industrials were up 45 points at 26,638, after having given back about 35 points from its high of the morning. The yield on the 10-year Treasury was closer to 2.50% ahead of this release, but it was last seen down at 2.48% afterward.

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