Manufacturing growth slowed in April; PMI falls to 55.4%

Economic activity in the manufacturing sector grew at a slower rate in April, from March, according to the Institute for Supply Management (ISM).

The Manufacturing ISM Report on Business released Monday (May 2) shows the purchasing managers’ index (PMI) decreased by 1.7 percentage points to 55.4% in April, from March. A reading above 50% indicates the manufacturing economy is expanding.

According to the report, new orders, production and employment increased at slower rates, while supplier deliveries slowed at a faster rate. The backlog of orders and raw materials inventories increased at slower rates. Customers’ inventories remained too low, and prices rose at a slower rate. Exports and imports also grew at slower rates. Lead times are at record levels for capital expenditures and production materials.

“The U.S. manufacturing sector remains in a demand-driven, supply chain-constrained environment,” said Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee. “In April, progress slowed in solving labor shortage problems at all tiers of the supply chain. Panelists reported higher rates of quits compared to previous months, with fewer panelists reporting improvement in meeting head-count targets. April saw a slight easing of prices expansion, but instability in global energy markets continues. Surcharge increase activity across all industry sectors continues. Panel sentiment remained strongly optimistic regarding demand. Though the three positive growth comments for every cautious comment was down from March’s ratio of 6-to-1, panelists continue to note supply chain and pricing issues as their biggest concerns.”

The following five manufacturing industries reported moderate-to-strong growth in April: machinery; computer and electronic products; food, beverage and tobacco products; transportation equipment; and chemical products.

“Manufacturing performed well for the 23^rd straight month, with demand registering slower month-over-month growth likely due to extended lead times and decades-high material price increases and consumption softening due to labor force constraints,” Fiore said. “Overseas partners are experiencing COVID-19 impacts, creating a near-term headwind for the U.S. manufacturing community.” He added that 15% of panelists’ general comments showed concern about their Asian partners’ ability to deliver reliably in the summer months, up from 5% in March.

Respondents in the chemical products and miscellaneous manufacturing industries noted shutdowns in China were causing supply issues.

“Long delays at ports, including in the U.S., are still providing supply challenges,” the chemical products respondent noted. “Inflation is out of control. Fuel costs, and therefore freight costs, are leading the upward cycle. At some point, the economy must give way; it will be tough to have real growth with such pressure on costs. Despite the issues and poor outlook, business remains brisk.”

Multiple respondents reported strong business and demand, but supply chain issues continued to limit production. A respondent in the plastics and rubber products industry said material price increases continued to be passed on to customers “based on costs of raw materials, logistics and labor to produce products.”