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Report On Business® Roundup: April Manufacturing PMI®

May 01, 2024
By Dan Zeiger

Not so fast, the Manufacturing ISM® Report On Business® indicated in April, as the data slowed momentum from the sector’s first expansion in 16 months in March — especially a surge in the Prices Index that is likely to extend the wait for interest-rate cuts.

The composite PMI® reading of 49.2 percent reflected another contraction for U.S. factory activity. In some ways, the figure is an example of the psychological difference between a number coming in slightly above a target or breakeven point, and one below it.

“Is 49.9 percent that much worse than 50.1 percent? No, but there’s an emotional impact,” Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management® Manufacturing Business Survey Committee, told a conference call of reporters on Wednesday from ISM World 2024 Annual Conference at the MGM Grand in Las Vegas.

It’s a mild contraction, likely a bump in the road toward a manufacturing recovery, Fiore said. However, combined with a federal Job Openings and Labor Turnover Survey (JOLTS) report revealing 8.49 million available positions in March (the lowest number in three years), the PMI® didn’t buoy investors’ spirits as the U.S. Federal Reserve (Fed) concluded its two-day policy meeting on Wednesday. Interest rates went unchanged.

The Prices Index reading of 60.9 percent, an increase of 5.1 percentage points compared to March and its highest reading since June 2022 (78.5 percent). Such “foundational commodities,” as Fiore put it, as steel (listed as up in price for 10 months), aluminum (five months) and plastic resins (four months) continued to be nagging inflation drivers.

“The overall performance of the manufacturing sector is improving, but the prices number is picking up,” Fiore said. “I can’t speak for the Fed, but I can’t imagine it will be happy with that number.” He added, “I’m not sure where the Prices Index number will go. It’s been above 55 percent for two months, which isn’t comfortable, and it’s across many commodities.”

Regarding interest rates, Fiore said, manufacturing executives are primarily hoping to avoid another increase. “There’s no real danger as long as they don’t go up,” he said.

Prices were among the “inputs” data that Fiore called the most disappointing aspect of the April report. The Supplier Deliveries Index decreased 1 percentage point to 48.9 percent (indicating faster lead times), the Inventories Index was unchanged at 48.2 percent and the Imports Index decreased 1.1 percentage points, to 51.9 percent.

That could be a timing issue, with those dynamics taking longer than expected to respond to improved demand. As an example, Fiore said, a company’s inventory levels will be adversely impacted by slower deliveries from a steel or aluminum mill.

Though it remained in contraction territory, the Employment Index reading of 48.6 percent, up 1.2 percentage points compared to March, was somewhat encouraging, Fiore said. Staff-cutting efforts appear to be slowing, with respondents’ comments on hiring outnumbering those about reductions by the largest margin since September.

“It feels like there’s a transition from reducing staff to stabilizing,” he said. “That means a likely expansion again as we get to the summer.”

A somewhat bewildering aspect of the data was the subpar performance of food and beverages, manufacturing’s third-largest industry by share of sector gross domestic product (GDP). That industry’s PMI® for April was 47 percent, down from 54 percent the previous month; Fiore said that and the sluggish inputs data kept the Manufacturing PMI® under 50 percent.

Just more than half (52 percent) of manufacturing GDP expanded in April.

“It seemed like the food and beverages decline was for no real reason,” he said. “Many of the industries are gearing up for the summer season, which means they should be expanding. And when it’s the No. 3 industry, when it’s slow, that’s going to impact the PMI® a lot more than a smaller industry would.”

The Report On Business® roundup:

Barron’s: U.S. Manufacturing Sector Contracts Again in April. “Overall, it’s an OK report. The Industrial Select Sector SPDR ETF was down about 0.3% in early trading. The S&P 500 was down 0.2% and the Nasdaq Composite was off 0.1%. Caterpillar shares fell 0.1% in early trading. Industrial stocks aren’t moving much.”

Bloomberg: U.S. Factory Activity Shrinks With Price Gauge Highest Since 2022. “The readings indicate US manufacturing is struggling for traction after some optimistic signs earlier this year for the industry’s outlook. Producers continue to battle headwinds of higher interest rates, elevated input costs and sluggish overseas markets.”

CNBC: ISM Manufacturing Index Declines While Prices Measure Spikes. “If we look at the (Prices Index): 60.9 percent, that is hotter than expected,” analyst Rick Santelli said. “That’s much hotter than 55.8 percent (in March), and very interesting on a Fed day to see that index moving higher.”

Mace News: Manufacturing Slips Back into Slight Contraction, Hit by Pullback in New Orders, Surge in Costs, but Employment Shows Improvement. “April saw a jump in prices paid by manufacturers as higher energy markets pushed up costs for steel, aluminum and plastics, Fiore said. The biggest impact was seen in the prices for computers and electronics in April but the outlook for overall prices remains uncertain amid the prevailing ‘no-landing’ scenario under which the U.S. economy is unlikely to contract despite high borrowing costs, he said.”

MarketWatch: U.S. Manufacturing Improvement Goes Into Reverse in April. The decline was larger than expected. Economists surveyed by the Wall Street Journal had forecast the ISM factory index to dip to 49.9% after rising into growth territory after 16 months of contraction. … Economists have been predicting a rocky recovery for the manufacturing sector.”

Reuters: U.S. Manufacturing Sector Regresses in April; Prices Paid Near Two-Year High. “Despite weakening demand, inflation at the factory gate continued to heat up, suggesting that goods price disinflation could be close to running its course. Falling goods prices were the major driver of the moderation in inflation last year.”

ISM’s Services PMI® will be unveiled on Friday, and the Hospital PMI® on Tuesday. Also, the Semiannual Economic Forecast for the manufacturing and services sectors will be released on May 15. For the most up-to-date content on the reports under the ISM® Report On Business® umbrella, use #ISMPMI on X, formerly known as Twitter.

(Photo credit: Getty Images/Dusanpetkovic)

About the Author

Dan Zeiger

About the Author

Dan Zeiger is Senior Copy Editor/Writer for Inside Supply Management® magazine, covering topics, trends and issues relating to supply chain management.