The US Purchasing Managers Index (PMI) for April was released late last week by the Institute for Supply Management (ISM), and came in at a level of 48.7, down from 49.0 in February, falling below the key 50 mark that separates US manufacturing expansion from contraction for 28 out of the last 30 months.
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| “Uncertainty over tariffs is providing a big challenge from both Tier-1 suppliers we will have to pay tariffs on directly and Tier-2 suppliers that will try to pass tariffs through to us in the form of price increases and tariff surcharges.” said one manager in the chemicals sector. |
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Those two months of manufacturing expansion in January and February came after a long 26-month stretch of contraction – and now preceded two more months below 50.
However, ISM says that the overall economy continued in expansion for the 60th consecutive month after one month of contraction in April 2020. The PMI itself tracks closely but not exactly with the overall US economy.
A Manufacturing PMI above 42.3, over a period of time, generally indicates an expansion of the overall economy, according to ISM.
The other PMI numbers we track were mostly down.
The New Orders Index was again in contraction territory, registering 47.2, below 50 for the third month in a row following a three-month period of expansion. That was 2 percentage points higher than the 45.2 recorded in March but still showing contraction, in bad news for future US manufacturing activity.
The March reading of the Production Index (44.0) was 4.3 percentage points lower than March’s figure of 48.3. The index returned to contraction last month after two months of expansion preceded by eight months of contraction.
The Prices Index remained in expansion (or ‘increasing’) territory, registering 69.8, up 0.4 percentage point compared to the reading of 69.4 in March (above 50 = rising prices).
However, the Backlog of Orders registered 43.7, down 0.8 percentage point compared to the 44.5 recorded in March, with the index level still well below the 50 mark, meaning order books are declining.
The Supplier Deliveries Index indicated a continued slowing of deliveries, registering 55.2, 1.7 percentage points higher than the 53.5 percent recorded in March.
Supplier Deliveries is the only ISM index that is inversed, with a reading of above 50 indicating slower deliveries, which is typical as the economy improves and customer demand increases - or the reverse.
The Inventories Index registered 50.8, down 2.6 percentage points compared to March’s reading of 53.4. The index indicated expansion for a second consecutive month after six months of contraction, meaning companies in total added inventory in the month, though that is reflective of strategy or slowing demand is unclear.
Said Timothy Fiore, Chair of the Institute for Supply Management Manufacturing Business Survey Committee: “Demand and production retreated and destaffing continued, as panelists’ companies responded to an unknown economic environment. Prices growth accelerated slightly due to tariffs, causing new order placement backlogs, supplier delivery slowdowns and manufacturing inventory growth. Forty-one percent of manufacturing gross domestic product (GDP) contracted in April, down from 46% in March.”
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As always, the ISM report provides a graphic of the PMI scores for the last 12 months, which as can be seen show the two months over 50 in January and February after a long stretch of contraction since November 2022. It is now averaging just 48.5 over the past year.
Source: ISM
However, of the 18 sectors tracked by ISM, 11 reported growth in April. Listed in order of most growth, they are: Apparel, Leather & Allied Products; Petroleum & Coal Products; Plastics & Rubber Products; Electrical Equipment, Appliances & Components; Textile Mills; Computer & Electronic Products; Nonmetallic Mineral Products; Miscellaneous Manufacturing; Machinery; Chemical Products; and Primary Metals.
As always, there were some interesting comments from PMI survey respondents.
“Uncertainty over tariffs is providing a big challenge from both Tier-1 suppliers we will have to pay tariffs on directly and Tier-2 suppliers that will try to pass tariffs through to us in the form of price increases and tariff surcharges.” said one manager in the chemicals sector.
Another manager in the computers and electrics sector stated that “Business climate is apprehensive, and with tariff costs implemented, all inbound Chinese shipments are on hold. It is not feasible for our business or customers to sustain the pricing required to provide an acceptable margin.”
Finally, a manager in the food and beverage sector commented that “The most important topic is tariffs. Risks include margin erosion due to rising operational costs and freight delays disrupting delivery timelines. Supplier relationships are strained by pain-share negotiations, and competitors are gaining share by importing from lower-tariff regions.”
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