ISM reports continued manufacturing growth in April despite sequential decline

Even though its core readings trended down from March, April manufacturing output remained in growth mode, according to the most recent edition of the Institute for Supply Management’s monthly Manufacturing Report on Business, which was released today.

The April PMI, the index used by the ISM to measure growth, fell 2.4 percent in April to 54.8 (a reading of 50 or higher indicates growth). Despite the decline, the PMI has seen growth for the last eight consecutive months, and it is up 1.2 percent compared to the 12-month average of 53.6, with the over all economy growing for 95 consecutive months.

ISM said that 18 of the 18 manufacturing sectors contributing to the report grew in March, including Electrical Equipment, Appliances & Components; Textile Mills; Nonmetallic Mineral Products; Furniture & Related Products; Plastics & Rubber Products; Fabricated Metal Products; Printing & Related Support Activities; Machinery; Paper Products; Chemical Products; Food, Beverage & Tobacco Products; Primary Metals; Miscellaneous Manufacturing; Computer & Electronic Products; Petroleum & Coal Products; and Transportation Equipment. The only industry that reported contraction in April compared to March is Apparel, Leather & Allied Products.

Like the PMI, some of the main metrics featured in the report also were down.

New orders, which are often viewed as the engine driving manufacturing, were off 2.4 percent to 54.8, following a 0.6 percent February decline and a 4.7 percent gain from January to February’s 65.1, matching the previous high of 65.1 recorded in December 2013. New orders have grown for the last 8 months.

Production headed up 1.0 percent to 58.6, coming off of a 5.3 percent decline from February to March and also has grown the last 8 months. Employment dropped 6.9 percent to 52.0 while still growing over the last seven months.

Inventories were up 2 percent to 51.0 for its second gain in the last four months. And supplier delivers at 55.1 (a reading over 50 indicates contraction) slowed at a faster pace for the 12th month in a row.

Comments submitted by ISM member respondents featured in the report were largely optimistic, even though many key data points were down.

“For [the] first time in a long time, revenue was up in Q1 year-over-year,” said Apparel, Leather & Allied Products respondent. Our customers’ businesses are starting to show sustained health.”  And a miscellaneous manufacturing respondent noted cited ongoing market strength, adding,  “While world/political headlines cause personal anxiety, business conditions remain solid.”

Brad Holcomb, chair of the ISM’s Manufacturing Business Survey Committee, pointed out in an interview that even though the ISM’s metrics were off that growth remains firmly intact. What’s more, he said that on a year-to-date basis through April, each month of 2017 the PMI has outperformed 2016 to this point.

“New orders are off but that is something that goes up and down, and it is coming off of a pretty big high, with 16 sectors reporting new orders growth and 17 for production and 12 in employment,” he said.

Holcomb explained that over all manufacturing is on the right track, based on expectations from the beginning of the year.

“That is the way things feel right now,” he said.

Taking the current state of manufacturing a step further, he said that manufacturing continues to outrun GDP by a wide margin, with the federal government reporting a 0.7 percent GDP reading for the first quarter.

“Our statistics would be more suggestive of a 4 percent increase in real GDP, which is quite a disparity,” he said. “Manufacturing remains a leading indicator for the rest of the economy, so good things could lie ahead.”