The manufacturing sector expanded in April, according to the Institute for Supply Management (ISM) report released today. The purchasing manager’s index was 62.4%, a 0.1% decrease from March. Any reading above 50% indicates growth in the sector.
“The second quarter is off to a very strong start,” said Norbert Ore, ISM survey director. “Many respondents indicate that order backlogs are growing for the first time in several years.”
The production index grew 1.5% to read 67%, reflecting brisk growth. The hiring rate has picked up as well, with the employment index increased 0.8% to 57.8%. New orders growth cooled, with a 0.7% decrease to 65%. More companies are backlogging orders as the index jumped 3% to 66.5%.
A couple of issues dog the overall manufacturing outlook, however. Companies are reporting raw material prices are continuing to rise, as ISM prices index read 88%, a 2% increase over March.
“The list of metals up in price is quite extensive— almost every category of product has seen price movement,” Ore said.
The increase in raw material prices is a result of high demand after a sluggish economy, Chris Brady, Commercial Motor Vehicle Consulting analyst said. But commodity prices will not remain high forever.
“It takes a while for prices to decline— for the short term you get increases in prices. But as manufacturing output increases, demand goes down,” Brady said, predicting that raw materials will be expensive for two more quarters. “Coming out of a slow economy, manufacturers can’t boost output at the drop of the hat. If there’s one link in the supply chain that’s struggling to meet capacity, then the whole chain slows down.”
Supplier deliveries slowed down slightly, as the deliveries index decreased 0.8% to read 67.1%. In the case of supplier deliveries, percentages lower than 50 are favorable. As for indications of slower deliveries, Brady said it means carriers are struggling to meet demand.
“When the economy was slow, carriers were able to deliver their freight much faster,” Brady said. “Slower deliveries mean manufacturers are boosting output.”