The U.S. manufacturing sector continued its streak of expansion in April, although at a slightly slower pace, according to the Institute of Supply Management’s monthly report on business. The ISM’s leading indicator for manufacturing – the Purchasing Manager’s Index (PMI) – registered 50.7 percent, a 0.6 percent decrease from March’s reading of 51.3 percent, according to Bradley J. Holcomb, chair of the Institute for Supply Management Manufacturing Business Survey Committee.
Any number over 50 in the PMI represents expansion in the manufacturing sector.
April’s rate is the lowest of the year, but it may be reflecting some seasonality, according to Holcomb. “Every January we reseasonalize the data to take that variable out of the index. On the other hand, this pattern seems to be cropping up in the past two or three years, with a lull or soft spot occurring after the first quarter of the year.”
The supporting metrics of the PMI continue to be strong, he adds. “New orders and production are both over 50,” he said. “The one metric in question is inventory, at 46.5. If that were stronger, we believe the PMI would be higher.”
The New Orders Index increased in April by 0.9 percentage point to 52.3 percent, and the Production Index increased by 1.3 percentage points to 53.5 percent. The Employment Index registered 50.2 percent, a decrease of 4.0 percentage points compared to March’s reading of 54.2 percent. The Prices Index registered 50 percent, decreasing 4.5 percentage points from March, indicating that overall raw materials prices remained unchanged from last month. “Comments from the panel designate a range of strong/steady growth, to flat/declining volumes, depending upon the particular industry,” Holcomb said.
Purchasing managers, notes Holcomb, are managing down their inventories and watching the pricing index for raw materials. With materials prices on the decline, there’s a future opportunity to replenish inventory at a lower cost. “Purchasers will certainly take advantage to buy at future prices, and this is reflected in the data,” he said.
For example, order backlogs increased for the month of April, to 53 percent -- 2 percentage points higher than the 51 percent reported in March. “Companies are trying to manage their inventory in anticipation of new orders and to maintain production at a consistent level,” Holcomb said, adding it’s unlikely that manufacturers will be caught short of inventory. “If the [inventory] rate were lower, maybe,” he mused. “But at the current level it’s strategic: buyers are looking future pricing opportunities. “