While seeing a modest sequential decline, April manufacturing output remained on the right side of growth, according to the most recent edition of the Manufacturing Report on Business, which was issued today by the Institute for Supply Management (ISM).
The report’s key metric, the PMI, had a reading of 55.4 (a reading of 50 or higher indicates growth), down 1.7% compared to March’s 57.1, while marking the 23rd consecutive month of growth, at a slower rate, as well as the 23rd consecutive month of overall economic growth.
April’s PMI reading is 3.9% below the 59.3 average over the last 12 months, with May 2021’s 61.6 marking the high for that period and April’s 55.4 marking the low for that period.
ISM reported that 17 manufacturing industries sectors saw gains in April, including: Apparel, Leather & Allied Products; Machinery; Plastics & Rubber Products; Nonmetallic Mineral Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Transportation Equipment; Printing & Related Support Activities; Electrical Equipment, Appliances & Components; Paper Products; Primary Metals; Furniture & Related Products; Chemical Products; Textile Mills; Fabricated Metal Products; Miscellaneous Manufacturing; and Wood Products. The only industry reporting a decrease in April compared to March is Petroleum & Coal Products.
The report’s key metrics were mostly down in April.
New orders, which are commonly referred to as the engine that drives manufacturing, were basically even with April, at 53.5, falling 0.3%, growing, at a slower rate, for the 23rd consecutive month, with five of the six largest manufacturing sectors— Computer & Electronic Products; Transportation Equipment; Food, Beverage & Tobacco Products; Machinery; and Chemical Products—increased new orders at moderate-to-strong levels and 11 new sectors showing growth.
Production—at 53.6—decreased 0.9%, growing, at a slower rate, for the 23rd consecutive month, with five of the six largest manufacturing sectors expanding and 14 sectors up overall. ISM said that demand remained strong in March, with hiring and material availability continuing to show improvements, with the caveat that factories are still struggling to hit optimum output rates related to high levels of employee turnover.
Employment—at 50.9—fell 5.4%, more than erasing March’s 3.4% gain and growing, at a slower rate, for the eighth consecutive month, with five of the six largest manufacturing sectors and nine sectors overall up for the month. ISM said that its survey panelists’ companies are still indicating employment levels are being driven by a primarily by turnover and a small labor pool and affecting further output growth.
Other notable metrics included: -Supplier deliveries—at 67.2 (a reading above 50 indicates contraction)—slowed, at a faster rate, for the 74th consecutive month, with the reading continuing to reflect suppliers’ difficulties in meeting demand from panelists’ companies -Backlog of orders—at 56.0—decreased 4.0%, following a 5.0% March decrease, growing, at a slower rate, for the 22nd consecutive month, with ISM saying the reading is an indication that output remains constrained and new orders continue at moderate levels; -Inventories—at 51.6—decreased 3.9%, growing, at a slower rate, for the ninth consecutive month, and customer inventories—at 37.1—up 3%, trending too low, at a slower rate, for the 67th consecutive month; and -Prices—at 84.6—were down 2.5%, increasing, at a slower rate, for the 23rd consecutive month, following an 11.5% March gain, the biggest sequential gain, for pricing, since a 12.2% increase in December 2020
Comments from ISM member panelists in the report showed some familiar themes, including supply chain issues and pricing, among others.
A chemical products respondent said that Tier-2 supplier shutdowns in Shanghai are causing a ripple effect for its suppliers in other parts of China.
“Long delays at ports, including in the U.S., are still providing supply challenges,” said the respondent. “Inflation is out of control. Fuel costs, and therefore freight costs, are leading the upward cycle. At some point, the economy must give way; it will be tough to have real growth with such pressure on costs. Despite the issues and poor outlook, business remains brisk.”
An Electrical Equipment, Appliances & Components respondent said that business is strong, with backlog continuing to grow due to new orders and inconsistent supply chain conditions, while adding that shortages of components are the main factor limiting the respondent’s company’s production.
Tim Fiore, Chair of the ISM’s Manufacturing Business Survey Committee, said in an interview that, at first glance, while the report’s data indicates things are slowing down, it could be more of a timing issue.
“We took four points out of new orders and production in the month of April and some of March,” he said. “If things were more normal, you would see demand taper off and start to ease up, but things are not normal. We are still at record lead times as is capex. There is no normality. We are still working off of backlog. I could easily argue that when taking seasonal factors out that PMI would be 57.1. It is a big hit.”
For new orders, Fiore observed that new export orders are definitely easing [down 0.5%, to 52.7 and growing, at a slower rate, for the 22nd consecutive month], feeling the impact of the ongoing pandemic-related shutdown in China, while the customer inventories number remains below 40.
And he said that the 51.6 inventories reading could be viewed as a disappointment, but it has happened before pre-pandemic, when the number a month after should have dropped, and, in this case, it dropped in April while it was expected in May, with the expectation it will pop back up in June.
On the employment side, Fiore said that April’s 5.4% decline reflects the ongoing difficulty companies continue to face, for hiring, as employees quitting or switching companies often negates the number of hires made each month.
“There are not enough people in the workforce, and wages are escalating, leading people to quit [and take higher-paying jobs],” he said. “The only solution I see is that there will be a lot of new people entering the workforce soon, following college graduation, which might help.”
On a year-to-date basis, Fiore said that the state of manufacturing is solid overall, given the challenges it has faced so far, including Omicron, $100 per barrel oil prices and the ongoing Russia-Ukraine conflict.
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