US April ISM Manufacturing in Contraction for 6th Straight Month as New Orders Remain Sluggish Amid Uncertainty 

–ISM’s Fiore: Main Index in 47 to 51 Range, Don’t See Any Change in Near Term

–Fiore: Output Side Positive, Input Side Weak; Future Is Uncertain

–Fiore: Firms Managing Output to Prepare for Pickup in Late Summer, Early Fall

–Fiore: Customers Inventories at Low End of ‘Too High’

By Max Sato

(MaceNews) – U.S. manufacturing activity was in contraction territory for the sixth straight month in April as new orders remained subdued amid uncertainty over the timing of recovery in demand later this year, data from the Institute for Supply Management released Monday showed.

The ISM survey also indicated that nearly equal numbers of firms are increasing or shedding staff amid mixed sentiment about when significant growth will return.

The manufacturing index compiled by the ISM, which shows general direction, rose 0.8 percentage points to 47.1 in April after falling 1.4 points to 46.3 in March and edging up 0.3 point to 47.7 in February. The latest figure is above the median economist forecast of 46.8, but remained below 50, indicating contraction in the sector.

Regarding the overall economy, this figure indicates a fifth month of contraction after a 30-month period of expansion. The ISM’s manufacturing PMI reading above 48.7, over time, generally indicates an expansion of the overall economy.

The index has been on a gradual downtrend since June 2022. It remains the lowest since May 2020, when the index at 43.5 was recovering from a recent low of 41.8 the previous month during the first wave of the pandemic. The all-time low is 29.4 hit in May 1980.

“The April composite index reading reflects companies continuing to manage outputs to better match demand for the first half of 2023 and prepare for growth in the late summer/early fall period,” Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, said in a statement.

“We are operating in a 47 to 51 range, compared to 48 to 52 several months ago,” he told reporters. “I don’t think anything is changing in the near term.”

Fiore told reporters last month that the timing of the pickup in demand appeared to be delayed from earlier expectations of July to August, adding that index had been in a range of 48 to 52 previously and was now in a range of 46 to 49, and probably would be the same in the April-June quarter.

The output side is up from new orders to production, showing positive signs as new orders are future revenues and production goes into inventories but is generally converted into sales, he told reporters Monday.

On the other hand, he said, the input side continues to be weak, especially in manufacturing inventories, which has been declining and indicates uncertainty for future demand. Customer inventories are now at the low of “too high,” which is a warning bell, he added.

“Nothing in the report would indicate to me that we are going to change from that 47 to 51 (range),” Fiore concluded. “The future is uncertain.”

Business continues to contract, albeit slowly year over year, a chemical producer told the ISM survey. “We are currently projecting that the third quarter will see some improvement in business, especially in our metals coating for the aerospace industry. But unforeseen circumstances – international or domestic – could change things quickly,” the firm said.

“Business is steady,” a transport equipment maker said. “Closely monitoring demand going forward to detect a negative trend.” A primary metals producer said, “The next couple of months should provide answers – or not. It’s hard to make projections at the moment.”

Among the five subindexes that directly factor into the manufacturing PMI, the new orders Index contracted for the eighth consecutive month but edged up 0.8 points to 45.7 in April after falling 2.7 points to 44.3 in March.

The production index reading of 48.9 percent is a 1.1-percentage point increase from 47.8 in March, when it gained 0.5 point, but it is in contraction for the fifth straight month. 

The employment index popped into expansion territory for the first time in four months, registering 50.2 in April, up 3.3 points from 46.9 in March, which was 2.2 points lower than the February reading of 49.1. “Panelists’ comments continue to indicate near equal levels of activity toward expanding and contracting head counts at their companies, amid mixed sentiment about when significant growth will return,” the ISM said.

The delivery performance of suppliers to manufacturing organizations was faster for the seventh straight month. The supplier deliveries index 44.6 percent is 0.2 point lower than the 44.8 recorded in March. It remains the lowest since 43.2 in March 2009.

The inventories index fell 1.2 points to 46.3 in April from 47.5 in March, when it dipped 2.6 points from 50.1 in February.

Among other subindexes, the customers’ inventories index jumped 2.4 points to 51.3 from 48.9 in March and 46.9 in February, entering the low end of ‘too high’ territory, a negative for future production. It was the highest in more than six years since September 2016, when it registered 52.5. The all-time high is 56.0 hit in January 2001.

The backlog orders index was at 43.1, which is 0.8 point lower than the March reading of 43.9.

The prices index stood at 53.2 in April, up 4.0 points from 49.2 in March, when it dipped 2.1 from 51.3 in February. It moved back into ‘increasing’ territory, at a moderate level, after one month of marginally decreasing prices.

“Price instability remains and future demand is uncertain as companies continue to work down overdue deliveries and backlogs,” Fiore said.

“Pricing pressures continue to plague daily operations,” a firm from the food, beverage and tobacco products category told the ISM. “After consecutive years of inflation and aggressive pricing to our retailers, we are starting to see resistance in the willingness to pass along pricing to end consumers. Discounting has entered into conversation.”

The new export orders index remains in contraction territory but rose 2.2 points to 49.8 in April from 47.6 in March, backed by firmer demand from Asia and Europe.

The manufacturing sector is in the sixth contracting phase in the past 20 years. Previously, the ISM manufacturing PMI posted contraction just before the pandemic hit the global economy, from August to December 2019 and from March to May 2020. The deepest slump in the past two decades was recorded from September 2008 until July 2009 (the bottom was 34.5 in December 2008) triggered by the U.S. credit crisis.

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