The Institute for Supply Management, the Tempe, Arizona-based trade group earlier today reported that manufacturing activity had expanded again in April, and did so at a somewhat stronger pace than had been forecast. (Such activity is measured on a 0 to 100 basis, with a reading of 50.0, or better, signaling that manufacturing activity is expanding, as is the economy at large. A reading between 42.0 and 50.0 indicates that manufacturing is contracting, but that the economy is still apparently expanding, in the aggregate. A survey result of less than 42.0 suggests that not only is manufacturing in decline, but that the nation, itself, seems to be in a recession. Such a state of affairs had prevailed in this survey during much of the previous recession, which had lasted from late 2007 to mid-2009.)
In all, manufacturing came in at 60.4 last month; a reading of 59.5 had been the consensus forecast. In March, the index had come in at a solid 61.2. In addition to the overall, or composite, index, which came in at the aforementioned 60.4, we saw that new orders were at 61.7; that was a lesser rate of improvement than the March reading of 63.3. There was also a marked deceleration in the rate of increase in production, which expanded at a 63.8 reading; the prior month had seen a sharper gain, to 69.0. Employment growth also slowed to 62.7 from 63.0. On the other hand, prices paid increased a little more rapidly, coming in at a very strong 85.5 up from 85.0 in March. That further attests to the fact that inflation is on the rise across this key sector, as well as much of the rest of the economy. At the same time, backlogs soared, rising to a level of 61.0 in April from a barely expansionary 52.5 in March. Finally, exports strengthened, reaching 62.0 last month; the March increase was a more restrained 56.0.
All in all, it was a good report to begin the merry month of May. Importantly, this was also the 21st straight month in which manufacturing activity has been on the increase, a notable string of monthly improvement in what has often been a spiritless business recovery, overall. Meanwhile, of the 18 manufacturing industries chronicled in this closely watched economic survey, 17 reported growth in April, led by special strength in wood products, plastics and rubber products, primary metals, transportation equipment, and fabricated metal products. Furniture and related products was the only sector to report a decline in activity--that is, a reading below 50.0. This setback was not all that surprising given the weakened state of the housing market in the United States, at this time.
As noted, this was the 21st straight monthly increase for this survey, with the range of improvement over the past year being from a low of 55.1 in July to a high of 61.4 in February. For the first four months of this year, the level of activity has ranged from 60.8 in January, to the aforementioned 61.4 in February.
Comments from purchasing managers consulted in this survey included acknowledgements that rapidly rising raw materials costs are putting extreme pressure on profits, with suppliers trying to play catch up to minimize the damage to profit margins. On a brighter note, some purchasing managers were saying that the market for transportation equipment continues to get stronger on a month-to-month basis, and that the recovery, in general, is faster than anticipated. We will get a look at the transportation market later this week when auto sales for April are issued. Note also that two days from now, the ISM will report on non-manufacturing activity, a survey that covers the important services sector.
At the time of this article, the author did not have positions in any of the companies mentioned.