Manufacturing sector, overall economy contracted in April; PMI at 41.5%

by Talk Business & Politics staff ([email protected]) 258 views 

The Purchasing Managers’ Index (PMI) decreased 7.6 percentage points to 41.5% in April, from March, as the manufacturing sector contracted for the second consecutive month and the overall economy contracted after 131 consecutive months of growth amidst the COVID-19 (coronavirus) pandemic, according to the Institute for Supply Management (ISM).

The ISM released Friday (May 1) the Manufacturing ISM Report on Business for April, and respondents in the report continue to be impacted by the pandemic.

In April, the PMI fell to its lowest level since April 2009, when it was 39.9%. The 7.6 percentage point decrease is the largest one-month decline since a 9 percentage point decrease in October 2008. A PMI of 41.5% corresponds to a 0.4% GDP decrease, but the economic decline was likely larger, the report shows. GDP fell 4.8% in the first quarter, according to the initial estimate from the U.S. Bureau of Economic Analysis. A PMI above 42.8% indicates that the overall economy is expanding, and a PMI above 50% indicates the manufacturing economy is expanding.

All of the PMI subindexes continue to be negatively impacted by the COVID-19 pandemic.

The new orders index declined 15.1 percentage points to 27.1% in April, from March. The production index declined 20.2 percentage points to 27.5%. The backlog of orders index fell 8.1 percentage points to 37.8%. The employment index declined 16.3 percentage points to 27.5%. The supplier deliveries index rose 11 percentage points to 76%, limiting the PMI decline.

The inventories index rose 2.8 percentage points to 49.7% in April, from March. The prices index fell 2.1 percentage points to 35.3%. The new export orders index declined 11.3 percentage points to 35.3%. The imports index increased by 0.6 percentage points to 42.7%.

Executives who were surveyed for the report were negative regarding the near-term outlook as sentiment was impacted by the COVID-19 pandemic and the continuing energy market recession.

The PMI shows the manufacturing sector contracted at a level not seen since April 2009 and was heading in a negative trajectory. Demand contracted, with the new orders index declining, pushed by new export order contraction, the customers’ inventories index approaching a level considered negative for future production and the backlog of orders index contracting in spite of a lack of production. Consumption, which is measured by the production and employment indexes, contributed a combined 36.5 percentage point decrease to the PMI while activity contracted as a result of plant closures and lack of demand.

Inputs, which comprise supplier deliveries, inventories and imports, rose again as a result of supplier delivery issues that were partially offset by continuing imports weakness. The delivery issues were a result of disruptions in domestic and global supply chains, and supplier plant shutdowns had the largest impact on this. Inventory contraction fell as a result of throughput issues. Inputs contributed to a 13.8 percentage point increased to the PMI. The supplier deliveries and inventories indexes directly factor into the PMI, while the imports index does not. Prices continued to fall and at a faster rate in April, supporting a negative outlook.

“The coronavirus pandemic and global energy market weakness continue to impact all manufacturing sectors for the second straight month,” said Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee. Food, beverage and tobacco products remains the strongest manufacturing industry, while the transportation equipment and fabricated metal products industries are the weakest of the six largest industries in the sector.

Respondents in the report provided the following feedback:

A respondent in the computer and electronic products industry said a 30% decline in April is impacting customers and suppliers. A chemical products respondent said production has stopped, except to make hand sanitizer for those in need. A manufacturer of personal protective equipment, including N95 masks, face shields, clothing and gloves, reported an order backlog that has risen “to numbers we have never seen.” The manufacturer expects some orders to be canceled but noted that some are for longer-term commitments from the federal government.

A refinery is losing money making gasoline as a result of falling demand, according to a respondent in the petroleum and coal products industry. A respondent in the nonmetallic mineral products said “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.” A respondent in the furniture and related products industry has shut 65% of its operations amid the pandemic.