The ISM Manufacturing Index slipped back into contractionary territory in April, dipping to 49.2, from 50.3 in March. Even so, 9 of 16 industries reported growth in April – the same as in March.
Demand softness was reflected by the new orders and new export orders sub-indices both flipping back into contraction, after pointing to expansion in March. The backlog of orders index dropped slightly further into contractionary territory.
Output also moderated, but remained in positive territory. However, headcount reductions continued in April, but showed signs of easing.
Consistent with the resurgence in inflation seen in other measures, the prices paid sub-index rose 5.1 pp to 60.9, “as commodity-driven costs continue to climb”. That is the highest level for this component since the summer of 2022.
Key Implications
The manufacturing sector’s flirtation with expansionary territory in March proved brief. The ISM Institute characterizes demand as ” at the early stages of recovery” and focused on the fact that production continued to expand.
The path towards recovery for the manufacturing sector has been bumpy, and April’s dip may prove to be a blip on an continuing uptrend given overall strength in the U.S. economy. The index is often a market mover, but today investors are awaiting how the Fed will address hotter inflation readings in recent months.
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