Manufacturing falls again in April, reports ISM

April manufacturing output saw another month of contraction, according to the new edition of the Manufacturing Report on Business, which was released today by the Institute for Supply Management (ISM).

The report’s key metric, the PMI, came at 47.1 (a reading of 50 or higher indicates growth), marking a slight 0.8% gain over March’s 46.3, while contracting, at a slower rate, for the sixth consecutive month. The past six months of contraction, through April, were preceded by a stretch of 29 consecutive months of growth. ISM also said that the overall economy contracted, at a slower rate, in April, for the sixth consecutive month, which was preceded by 30 consecutive months of growth.

The April PMI is 3% below the 12-month average of 50.1, with May 2022 marking the high, for that period, at 56.1, and March 2023, the most recent reading, at 46.3, marking the lowest.

ISM reported that five manufacturing sectors— Printing & Related Support Activities; Apparel, Leather & Allied Products; Petroleum & Coal Products; Fabricated Metal Products; and Transportation Equipment—saw growth in April. And 11 sectors saw declines, including: Furniture & Related Products; Wood Products; Nonmetallic Mineral Products; Electrical Equipment, Appliances & Components; Plastics & Rubber Products; Chemical Products; Machinery; Primary Metals; Computer & Electronic Products; Food, Beverage & Tobacco Products; and Miscellaneous Manufacturing.

The report’s key metrics were mixed in April, including:
-New Orders, which are commonly referred to as the engine that drives manufacturing, increased 1.4%, to 45.7, contracting, at a slower rate, for the eighth consecutive month, with eight sectors reporting growth;
-Production increased 1.1%, to 48.9, contracting at a slower rate, for the fifth consecutive month, following 30 consecutive months of growth, but seeing its best reading since entering contraction last December, with 11 sectors reporting growth;
-Employment came in at 50.2, rising 3.3%, showing growth, after two months of contraction, with seven sectors reporting growth;
-Supplier Deliveries, at 44.6 (a reading above 50 indicates contraction), grew, at a faster rate, for the seventh consecutive month, with three sectors reporting slower deliveries in April, for its fastest supplier delivery performance since March 2009, when it was at 43.2;
-Backlog of orders, at 43.1, slipped 0.8%, contracting, at a faster rate, for the seventh consecutive month, following 27 months of expansion, with three sectors growing order backlogs;
-Inventories, at 46.3, were down 1.2%, contracting, at a faster rate, for the second straight month, following 19 consecutive months of growth
-Customer Inventories, at 51.3, increased 2.4%, moving from “too low” in March to “too high” in April, with seven sectors reporting customers’ inventories as too high; and
-Prices, at 53.2, rising 4.0%, increasing after contraction in March and growth in February, with nine sectors reporting higher prices paid for raw materials

Comments submitted by the ISM member respondents again highlighted various themes related to the economy and market conditions.
“Having invested heavily to de-risk the supply chain over the last three years due to COVID-19, we are looking to reset with a number of our suppliers to reduce inventory, which has grown steadily over that period,” said a Computer & Electronic Products respondent. “Lead times are generally coming down, although electronic components are still a concern.”

Tim Fiore, Chair of the ISM’s Manufacturing Business Survey Committee, said in an interview that even though the PMI did not move back into growth territory, there were some positive signs in the April report.

One was the New Orders reading, which he explained it contracted at a lower level than in March, coupled with seasonal factors that would have pushed reading closer to 48. Another positive he cited was the New Export Orders reading up 2.2% to 49.8, coupled with Backlog of Orders, while contracting, remaining at the same level as March.

“The most alarming problem here is that our customer inventory numbers now the probably the low end of too high, which kind of says on the inventory scale, or the greater supply chain scale, that the customers warehouses are full of stuff, so they don’t really have a need for anymore,” he said. “The only way to change that is by having more demand to the can ship more. That is offset by the fact that the manufacturing inventory number is down to its lowest level in many years, and that is really preparation for what they perceive to be a future drop in output.”

The most positive part of the report, according to Fiore, is that the best measure of billings and revenue and production, with the April production number remaining pretty strong, up 1.1% to 48.9.

“That is pretty good, and I cannot complain about that,” he said. “The accommodative piece here is really the input side, with suppliers delivering very fast, and manufacturing inventory is very low—so it would help to see that start to rebound at some point,” he said. “Our percentage [of manufacturing sectors] with PMI under 45 actually came down to 12% from 25% in March. I see that as a positive. Chemical products is still not recovering. It was very close to 45, which is a negative and was a negative in March. We are not seeing that chemical products demand growing. The manufacturing hire-to-fire ratio is still less than 2:1, which is a little bit better than March…and way off the 9:1 we saw a year ago. It is still a negative. Pricing on the transportation side and the ability to get transportation are still very accommodative and is a negative, too.”

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