ISM: Manufacturing output stays strong in April

April manufacturing output remained elevated, coming off of its best monthly performance in years in March, according to data issued yesterday by the Institute for Supply Management (ISM).

In its monthly Manufacturing Report on Business, ISM said that the report’s key metric, the PMI, at 60.7 (a reading of 50 or higher indicates growth) was down 4% compared to March’s 64.7 reading, which marked the highest reading since November 1983’s 66. This marked the 11th consecutive of PMI growth, coupled with April representing the eleventh consecutive month of growth for the overall economy.

And the April PMI is 3.8% above the 12-month average of 56.9, with March’s 64.7 being the high and May 2020’s 43.1 being the low for that period.

ISM reported that all of the 18 manufacturing sectors it tracks saw growth in April including: Electrical Equipment, Appliances & Components; Textile Mills; Furniture & Related Products; Machinery; Fabricated Metal Products; Primary Metals; Miscellaneous Manufacturing; Chemical Products; Plastics & Rubber Products; Food, Beverage & Tobacco Products; Computer & Electronic Products; Nonmetallic Mineral Products; Apparel, Leather & Allied Products; Transportation Equipment; Paper Products; Petroleum & Coal Products; Printing & Related Support Activities; and Wood Products.

Each of the report’s key manufacturing metrics saw gains in April.

New orders, which are commonly referred to as the engine that drives manufacturing, decreased 4% to 64.3, growing, at a slower rate, for the 11th consecutive month, following January’s 68.0, its highest reading since January 2004’s 70.6. ISM said 16 of 18 manufacturing sectors reported growth for the month.

Production—at 62.5—was down 5.6% compared to March, also growing, at a slower rate, for the 11th consecutive month, following March’s 68.1, the highest monthly reading for production since January 2004’s 69.3. Employment—at 55.1—grew, at a slower rate, for the fifth consecutive month, following March’s 59.6, its highest reading since February 2018’s 59.8. Inventories—at 46.5—fell up 4.3%, contracting after growing in March.

Other notable metrics included:

• Supplier Deliveries—at 75.0 (a reading above 50 indicates contraction)—slowed, at a slower rate, for the 62nd consecutive month, following March’s 76.6, the highest reading since April 1974’s 82.1, with the delivery performance of suppliers to manufacturing organizations slower in April;
• Backlog of Orders—at 68.2—inched up 0.7%, growing, at a faster rate, for the tenth consecutive month, the highest reading since reporting for this subindex began in January 1993;
• Customers’ Inventories fell 1.5%, to 28.4, falling too low, at a faster rate, for the 55th consecutive month.
  and,
• Prices rose 4.0%, to 89.6, increasing, at a faster rate, for the 11th consecutive month, with prices over the last three months at its highest levels since July 2008, when it registered 90.4 percent

Comments from ISM respondents included in the report reflected the impact of businesses re-opening, coupled with concerns on different fronts, too.

A food, beverage, and tobacco products respondent pointed to an increase in business, as restaurants open up. And a computer and electronic products respondent said that the current electronics/semiconductor shortage is having a “tremendous impact” on lead times and pricing, as well as a general inflation of prices across most, if not all, supply lines. A furniture and related products respondent said that market capacity in most areas is oversold, with no realistic improvement on the horizon, adding that it appears demand will continue to strengthen, leading to more significant disruptions.

ISM Manufacturing Business Survey Committee Chair Tim Fiore said in an interview that even though April was down compared to the strong showing in March, it still marked a very good performance.

“What we had was record-low customers’ inventories and record-high backlog of orders, with demand still very respectable,” he said. “The production number was good but could have been much better. Employment was down and could be better, and supplier deliveries are still struggling, as evidenced by the fact that we are consuming inventory. It is still an input-driven expansion [ISM defines inputs as the trio of supplier deliveries, inventories, and imports]. We need to get people back to the workplace, with this being the first full month we were impacted by that.”

A key theme in the report’s data was wage increases, coupled with a pricing upswing for certain commodities like steel, computer chips, and aluminum, which he said are expected to remain a headwind for the rest of the year.

“Economists are calling that transitory, which it probably is, so when demand starts to relax, or supply starts to catch up to demand, we will see prices get back to some sort of normal level,” he said. “What is happening now is that our panelists’ companies are still struggling with hiring, and the suppliers are, too, and that is why we are seeing such a high supplier delivery number, and we consumed raw materials inventory in April. That is an indicator of trying to keep up, and we did a pretty good job of keeping up, and now we cannot keep up. The raw material inventory has taken a hit and will take a deeper hit in May, with customers’ inventories and backlog of orders still at record levels.”