United States: ISM manufacturing index falls to lowest level in 11 years in April
May 1, 2020
The Institute for Supply Management (ISM) manufacturing index fell to 41.5 in April from 49.1 in March, marking the lowest level in 11 years. The decline in April’s PMI was less than market expectations of a sharper plunge to 36.9; however, this was largely due to a record lengthening of supplier delivery times. Nevertheless, the index slipped further below the 50-threshold that separates contraction from expansion in the manufacturing sector.
The coronavirus pandemic, its resulting containment measures, and the energy market downturn dealt a swift blow to the manufacturing sector in April. New orders shrank at the quickest pace since December 2008 in April, due to frail domestic and external demand, which saw export sales fall significantly. Production contracted at the sharpest rate since records began in 1948, due to falling demand and labor constraints. Likewise, the sub index for employment also hit the lowest reading since the late 1940’s amid mass layoffs and furloughs caused by compliance requirements or muted production. Meanwhile, anemic demand caused backlogs of work to plunge in the month.
Turning to the supply side, supplier delivery times slowed markedly in April, with the sub index hitting a near five-decade high due to persistent global and domestic supply chain disruptions. Consequently, inventories fell the 11th month running, but at a weaker rate than in March.
On the price front, raw material prices fell further in the month, hitting their lowest level since January 2016, largely due to falling base metals and energy prices.
Comments from ISM respondents in April emphasized the impact of the pandemic on business, as one panelist laments, “COVID-19 has destroyed our market and our company. Without a full recovery very soon, and some assistance, I fear for our ability to continue operations”, while another manufacturer noted “COVID-19 has created a wave of activities, including vendors closing, vendors focusing only on the medical industry, employees not coming to work, [and] delayed shipments from overseas”.
Author: Lindsey Ice, Economist