US manufacturing falls back into contraction in April, prices rise

HOUSTON (ICIS)–Economic activity in US manufacturing contracted in April after expanding in March, according to the Institute of Supply Management’s (ISM) latest purchasing managers’ index (PMI) survey released on Wednesday.

March’s expansion followed 16 consecutive months of contraction.

In April, the PMI fell from 50.3 points in March to 49.2 in April. PMIs below the neutral 50.0 mark indicate a contraction in manufacturing activity, readings above 50.0 indicate an expansion.

In commenting on the April PMI survey, Kevin Swift, ICIS senior economist for global chemicals, noted that:

• Nine industries out of 18 expanded in April.
• The chemical industry gained for the fourth month after 16 months of decline.
• Overall manufacturing production fell back but continued to expand.
• Demand remains at the early stages of recovery and was softer last month.
• Customer inventories were deemed “too low” and employment contracted again during the month.
• New orders slipped back into contraction territory.
• Order backlogs contracted at a faster pace than in March.
• Inventories contracted at the same pace as in March.

Both new orders and order backlogs, when combined with the reading on inventories, are good indicators of future activity, the economist said.

PRICES
He also noted that prices registered a 5.1-point gain to reach 60.9 in April – their strongest reading since June 2022.

Prices are sensitive to changes in supply and demand and tend to provide a leading signal, he said.

The rise in prices is “troubling” as it suggests that inflation readings in coming months may come in above expectations, he said.

“The key is to watch the price of oil, which is a cost component for most manufactured goods, logistics, and many services,” he said.

“If gains in disinflation prove stubborn, higher and longer interest rates are likely, and combined with an election year, provide an argument for no interest rate cuts,” he said.

“Not good for housing and light vehicles, but good for savers,” he added.

(source: ISM)

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Thumbnail shows an automobile production line. Image by Martin Divisik/EPA-EFE/Shutterstock