The Institute for Supply Management (ISM) recently announced that the Manufacturing Purchasing Managers’ Index (PMI) dropped to 48.7 in April. This huge number is another indication that continued contraction in the U.S. manufacturing sector is a reality. Therefore, this economic reading was below the neutral level of 50. It was markedly against the market expectations of 48 and showed a slight sign of strength in tough circumstances.
The accompanying ISM Manufacturing PMI has remained below the 50.0 critical threshold for seven months. This recessionary trend is part of a larger, nationwide contraction in manufacturing activity. Timothy R. Fiore, CPSM, Chair of the ISM Manufacturing Business Survey Committee, noted that “in April, US manufacturing activity slipped marginally further into contraction after expanding only marginally in February.” This declaration is a reminder of the persistent challenges that continue to plague manufacturers as they seek to operate within a very complicated economy.
Even with the general decline, there were a few components of the report that bucked the trend and posted positive results. The Component Prices Paid Index rose to 69.8 from 69.4, a sign that manufacturers continue to see rising costs for their inputs. This increase in costs might be an indication of inflationary pressures in the industry.
The Employment Index climbed to 46.5, an increase from 44.7. This positive change reflects a deceleration in the rate of payroll cuts within the manufacturing industry. An index value below 50 means this is a net loss in employment. The modest improvement in the Employment Index may reflect efforts by some manufacturers to stabilize their workforces amid fluctuating demand.
The report highlighted that “demand and output weakened while input strengthened further, conditions that are not considered positive for economic growth.” This point really drives home the pressure that manufacturers are currently feeling as they navigate the waters of declining demand alongside quickly increasing costs.
In reaction to the PMI data, traders in financial markets responded by pushing the U.S. Dollar Index up 0.33%. It has now risen to 99.95. The index remains remarkably solid, dancing around the key 100.00 level. This movement reflects the market’s belief in the strength of the economic recovery and the Federal Reserve’s monetary policy.