New Orders, Production, Employment and Inventories Contracting

Economic activity in the manufacturing sector failed to grow in April, while the overall economy grew for the 78th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business®.

The report was issued today by Norbert J. Ore, C.P.M., chair of the Institute for Supply Management Manufacturing Business Survey Committee.

“The manufacturing sector failed to grow in April as the PMI fell below 50 percent for the third consecutive month. Manufacturers are in a situation where both new orders and production are slowly declining, but prices continue to rise at highly inflationary rates. Bright spots this month are the growth in the Backlog of Orders Index after six consecutive months of decline, continued strength in new export orders and a reduction in customers’ inventories.”

The seven industries reporting growth in April - listed in order - are: Computer & Electronic Products; Miscellaneous Manufacturing; Printing & Related Support Activities; Paper Products; Transportation Equipment; Machinery; Furniture & Related Products; and Chemical Products. The industries reporting contraction in April are: Wood Products; Textile Mills; Apparel, Leather & Allied Products; Electrical Equipment, Appliances & Components; Plastics & Rubber Products; Fabricated Metal Products; Petroleum & Coal Products; Food, Beverage & Tobacco Products; and Nonmetallic Mineral Products.

Manufacturing failed to grow for the third consecutive month in April as the PMI registered 48.6 percent, the same as in March. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

A PMI in excess of 41.1 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the PMI indicates the overall economy is growing and the manufacturing sector is contracting at this time.

“The past relationship between the PMI and the overall economy indicates that the average PMI for January through April (49.1 percent) corresponds to a 2.5 percent increase in real gross domestic product (GDP),” Ore said. “In addition, if the PMI for April (48.6 percent) is annualized, it corresponds to a 2.4 percent increase in real GDP annually."

ISM’s New Orders Index registered 46.5 percent in April, the same as in March. A New Orders Index above 51.6 percent, over time, is generally consistent with an increase in the Census Bureau’s series on manufacturing orders (in constant 2000 dollars).

Six industries reported increases during April: Miscellaneous Manufacturing; Computer & Electronic Products; Electrical Equipment, Appliances & Components; Paper Products; Transportation Equipment; and Chemical Products. The industries that reported decreases during April are: Apparel, Leather & Allied Products; Textile Mills; Petroleum & Coal Products; Plastics & Rubber Products; Fabricated Metal Products; Machinery; Nonmetallic Mineral Products; and Food, Beverage & Tobacco Products.

ISM’s Production Index increased to 49.1 percent in April, an increase of 0.4 percentage point from the 48.7 percent reported in March. An index above 49.9 percent, over time, is generally consistent with an increase in the Federal Reserve Board’s Industrial Production figures.

Of the industries reporting in April, eight registered growth: Apparel, Leather & Allied Products; Computer & Electronic Products; Miscellaneous Manufacturing; Machinery; Chemical Products; Furniture & Related Products; Paper Products; and Transportation Equipment. The industries that reported decreased production during April are: Textile Mills; Electrical Equipment, Appliances & Components; Plastics & Rubber Products; Fabricated Metal Products; and Food, Beverage & Tobacco Products.

ISM’s Employment Index registered 45.4 percent in April, which is a decrease of 3.8 percentage points when compared to the 49.2 percent reported in March. An Employment Index above 49.5 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

The five industries reporting growth in employment during April are: Miscellaneous Manufacturing; Furniture & Related Products; Transportation Equipment; Machinery; and Computer & Electronic Products. The industries that reported decreases in employment during April are: Wood Products; Textile Mills; Primary Metals; Fabricated Metal Products; Electrical Equipment, Appliances & Components; Chemical Products; and Nonmetallic Mineral Products.

The delivery performance of suppliers to manufacturing organizations continued to slow in April as the Supplier Deliveries Index increased 0.4 percentage point to 54 percent from the 53.6 percent registered in March. A reading above 50 percent indicates slower deliveries.

The five industries reporting slower supplier deliveries in April are: Petroleum & Coal Products; Fabricated Metal Products; Computer & Electronic Products; Machinery; and Transportation Equipment. The only industry reporting faster deliveries during April is Nonmetallic Mineral Products.

Manufacturers’ inventories contracted in April as the Inventories Index registered 48.1 percent, which is 3.2 percentage points higher than the 44.9 percent reported in March. This is the 24th consecutive month of inventory liquidation. An Inventories Index greater than 42.4 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis’ (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).

The five industries reporting higher inventories in April are: Printing & Related Support Activities; Primary Metals; Computer & Electronic Products; Fabricated Metal Products; and Chemical Products. The industries that reported decreases during April are: Apparel, Leather & Allied Products; Electrical Equipment, Appliances & Components; Wood Products; Petroleum & Coal Products; Furniture & Related Products; Miscellaneous Manufacturing; Machinery; and Transportation Equipment.

The ISM Customers’ Inventories Index registered 45 percent in April, a decrease of 6 percentage points when compared to March’s reading of 51 percent. The index indicates that respondents believe their customers’ inventories are too low at this time.

Three industries reported higher customers’ inventories during April: Textile Mills; Plastics & Rubber Products; and Fabricated Metal Products. The industries that reported lower customers’ inventories during April are: Electrical Equipment, Appliances & Components; Printing & Related Support Activities; Primary Metals; Nonmetallic Mineral Products; Transportation Equipment; Food, Beverage & Tobacco Products; Miscellaneous Manufacturing; Chemical Products; Machinery; and Furniture & Related Products.

The ISM Prices Index registered 84.5 percent in April, indicating manufacturers are paying higher prices on average when compared to March. This is the highest reading for the index since it registered 86 percent in May 2004. While 71 percent of respondents reported paying higher prices and 2 percent reported paying lower prices, 27 percent of supply executives reported paying the same prices as the preceding month. A Prices Index above 47.4 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Index of Manufacturers Prices.

In April, 16 industries reported paying higher prices: Wood Products; Plastics & Rubber Products; Chemical Products; Machinery; Miscellaneous Manufacturing; Fabricated Metal Products; Furniture & Related Products; Petroleum & Coal Products; Nonmetallic Mineral Products; Primary Metals; Transportation Equipment; Food, Beverage & Tobacco Products; Printing & Related Support Activities; Electrical Equipment, Appliances & Components; Computer & Electronic Products; and Paper Products.

ISM’s Backlog of Orders Index registered 51.5 percent in April, 4 percentage points higher than the 47.5 percent reported in March. This is the first month of growth following six consecutive months of contraction in the Backlog of Orders Index. Of the 85 percent of respondents who reported their backlog of orders, 23 percent reported greater backlogs, 20 percent reported smaller backlogs, and 57 percent reported no change from March.

The eight industries reporting an increase in order backlogs in April are: Apparel, Leather & Allied Products; Electrical Equipment, Appliances & Components; Furniture & Related Products; Miscellaneous Manufacturing; Paper Products; Food, Beverage & Tobacco Products; Transportation Equipment; and Computer & Electronic Products. The industries that reported decreases in order backlogs during April are: Wood Products; Nonmetallic Mineral Products; Fabricated Metal Products; Machinery; and Chemical Products.

ISM’s New Export Orders Index registered 57.5 percent in April, an increase of 1 percentage point when compared to March’s index of 56.5 percent. This is the 65th consecutive month of growth in export orders.

The 11 industries reporting growth in new export orders in April are: Apparel, Leather & Allied Products; Printing & Related Support Activities; Nonmetallic Mineral Products; Food, Beverage & Tobacco Products; Plastics & Rubber Products; Miscellaneous Manufacturing; Electrical Equipment, Appliances & Components; Machinery; Computer & Electronic Products; Transportation Equipment; and Fabricated Metal Products. The industries that reported decreases in new export orders during April are: Furniture & Related Products and Chemical Products.

Imports of materials by manufacturers contracted during April as the Imports Index registered 48 percent, 3 percentage points higher than the 45 percent reported in March.

The five industries reporting growth in import activity for April are: Printing & Related Support Activities; Food, Beverage & Tobacco Products; Miscellaneous Manufacturing; Transportation Equipment; and Machinery. The industries that reported decreases in imports during April are: Nonmetallic Mineral Products; Apparel, Leather & Allied Products; Petroleum & Coal Products; Paper Products; Plastics & Rubber Products; Computer & Electronic Products; and Chemical Products.

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