ISM Manufacturing: Slower Growth As 5 Industries Report Contraction

May 1, 2019
Bottom Line: ISM’s survey of manufacturing managers suggested growth slowed markedly in April. 5 of 18 industries reported business contracted ( Apparel, Leather & Allied Products; Primary Metals; Wood Products; Petroleum & Coal Products; and Transportation Equipment). The new orders index fell to 51.7, down sharply from averages in the 56-58 range, while inventories rose slightly - typically a negative forward-looking indication. Overall it is important to note that growth is still positive for now, just decelerating sharply. Anecdotal evidence in this report suggested China trade policy and the potential of a US/Mexico border closing impacted outlooks. While every few months there seems to be some policy-related issue that causes concerns for manufacturers, they have typically rebounded. That said, the trend is clearly towards slower growth, and the potential for net contraction across industries is very real. The ISM Manufacturing Index FELL by 2.5 points in April to 52.8%, compared with market expectations for a smaller decline to a 55.0% This indicates that manufacturing activity expanded modestly during the month. New Orders declined sharply from 57.4% to 51.7%. Meanwhile, Export Orders declined modestly. Production declined moderately from 55.8% to 52.3%. Consequently, Order Backlogs grew moderately. Inventories grew modestly from 51.8% to 52.9%. They are modestly above the average survey level for the last twelve months. Employment declined sharply from 57.5% to 52.4%, suggesting there will be modest factory job creation in the upcoming payroll employment report. Prices declined moderately. Quotes from Survey:
  • “Business conditions remain largely unchanged. There is growing concern about supply chain product flow through the southern U.S. border. Price pressures remain, and inventories continue to grow in preparation for what is expected to be a growth year.” (Electrical Equipment, Appliances & Components)
  • “Mexico/U.S. border crossing delays are slowing supplier deliveries. Tariffs are resulting in increased prices on computer components, as well as manufacturers moving out of China to countries not impacted by the tariffs. Brexit expected to result in delays on moving product through the United Kingdom.” (Computer & Electronic Products)
  • “January and February were strong months. March softened significantly, eroding some of the [previous months’] gains.” (Chemical Products)
  • “[We are] closely watching the Mexico border situation as well as the tariff situation.” (Transportation Equipment)
  • “Economy is holding steady, and so are prices. Supply availability is generally OK, yet risk remains in chemicals and some longer lead-time packaging.” (Food, Beverage & Tobacco Products)
  • “Raw material prices continue to come down, along with logistics costs. Suppliers continue to struggle to get [qualified workers], and the learning curve is leading to quality issues. That is impacting their ability to deliver. Overall, business [is] strong. Monitoring the tariffs and Mexico border issues, which are a potential threat. The China trade agreement getting completed will help with stability with suppliers and costs management.” (Machinery)
  • “Business is steady. We expect business to grow throughout the second quarter, then level in the third and fourth quarter.” (Fabricated Metal Products)
  • “Commodity-price uncertainty — partially driven by concerns of an economic slowdown and trade/tariff policies — has led my company to reduce its capital spend in 2019. Our 2019 capital-spend levels will be similar to 2016 levels.” (Petroleum & Coal Products)
  • “Business seems to keep humming along.” (Plastics & Rubber Products)
  • “Order book remains strong; future outlook is beginning to soften a little.” (Primary Metals)
  • “Orders continue to be strong, especially from the steel industry.” (Nonmetallic Mineral Products)