United States: ISM manufacturing index eases further in April to a nine-month low but remains robust
May 2, 2018
Momentum in the manufacturing sector moderated for the second consecutive month in April after reaching an almost 14-year high in February, as manufacturing activity showed signs of softening across the globe. The Institute for Supply Management (ISM) manufacturing index eased from 59.3 in March to 57.3 in April, a larger decline than the drop to 58.3 market participants had expected. That said, the index still lies comfortably above the 50-point threshold that separates expansion from contraction in the U.S. manufacturing sector, where it has been for 20 consecutive months.
The decline in the headline figure in April was mostly due to a more pronounced fall in output, employment and inventories. The output sub-index fell below 60 for the first time in 11 months, but each subcategory of the PMI nevertheless continued to indicate robust rates of growth. Notably, new orders, both domestic and from abroad, continued to grow at a very strong pace across most industries in April, although they softened somewhat from the previous month. Data regarding inventories was relatively mixed. Customer inventories were depleted at a slower pace in the month, indicating slower demand growth, but raw material inventory levels grew more slowly as well, indicating difficulties in keeping up with manufacturers’ high demand amid longer supplier delivery times.
On the price front, input inflation continued to accelerate markedly in April and reached a seven-year high. Respondents indicated notably higher prices for steel and aluminum materials, signaling that the recent tariff announcement by the Trump administration has already had some impact on the market. Indeed, although the tariffs are not supposed to take effect until at least 1 June, following a delay on the eve of the original 1 May deadline, concerns over future prices and supply chains led many manufacturers to begin stocking raw materials already, driving prices up while adding pressure on companies’ margins. These effects could be further compounded by the escalation of the trade dispute with China, which could weigh on business confidence and see output prices go up significantly, denting consumers’ purchasing power and ultimately dragging on domestic economic growth.
United States Industrial Production Forecast
FocusEconomics Consensus Forecast panelists expect industrial production to increase 3.1% in 2018, which is up 0.1 percentage points from last month’s forecast. In 2019, panelists see industrial production expanding 2.3%.
Author: Joffrey Simonet, Economist