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United States PMI April 2019

United States: ISM manufacturing index falls to two-and-a-half year low in April on weaker orders amid declining export demand

The pace of growth in the U.S. manufacturing sector softened again in April after roughly stabilizing in the first months of the year. The Institute for Supply Management (ISM) manufacturing index fell from 55.3 in March to a two-and-a-half year low of 52.8 in April, missing market expectations of 55.0. Although the index remained above the 50-point threshold that separates expansion from contraction in the sector—where it has been for 32 consecutive months—the April reading evidenced that momentum in the manufacturing sector remained on a downward trend, as the index fell further away from the high of 60.8 reached in August of last year.

The deterioration in the index was largely due to weaker growth in new orders—from both the domestic and export markets—and production, which in turn weighed on hiring. The new orders index notably fell significantly, while export orders declined below the 50-point threshold, indicating a slight contraction in export demand. With weaker employment growth in the month, a positive sign came from backlogs of work, which increased solidly after a near-flat reading in March.

Looking at supply side indicators, supplier deliveries lengthened only marginally more than in the previous month, while manufacturers´ inventory levels increased at a faster clip. In a sign of easing supply-chain pressure, input prices were unchanged in April—contrasting the robust inflation registered in past months—while imports also declined marginally. However, on the customer side, inventories continued to fall at the same rapid pace as in March.

Furthermore, several survey respondents mentioned both the U.S.-China trade war and supply chain disruptions at the U.S.-Mexico border were negatively impacting their activity, with some respondents specifically indicating “growing concerns” over the Southern border situation.

Commenting on this month’s release, researchers at Nomura noted:

“Altogether, the April ISM report suggests a stepdown in both manufacturing current activity and momentum. While we had previously seen some stabilization in incoming data on the industrial sector, today’s survey suggests that slow global growth and business uncertainty continue to weigh on manufacturers, possibly extending the slowdown. A trade deal with China and stabilizing external growth should be positive for business sentiment but prolonged issues at the US/Mexico border may counteract those tailwinds”.

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