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Economy in Brief

ISM Manufacturing Index Falters in April
by Tom Moeller  May 3, 2021

• Factory activity weakens to lowest level in three months.

• Component declines are broad-based.

• Pricing power continues to improve.

The Institute for Supply Management (ISM) reported that its Composite Index of Manufacturing Sector Activity weakened to 60.7 during April after strengthening to 64.7 in March, which was the highest index level since December 1983. The reading fell short of expectations for 65.2 in the Action Economics Forecast Survey. During the last 15 years, there has been a 42% correlation between the composite index and the quarterly change in real GDP. Before the recession began, there had been a 67% correlation.

The ISM indicated that "companies and suppliers continue to struggle to meet increasing rates of demand due to coronavirus (COVID-19) impacts limiting availability of parts and materials."

The production index declined to 62.5 from 68.1, which was the highest level since January 2004. A slightly higher 44.3% (NSA) reported higher production while an increased 11.4% reported lower. The new orders index fell to 64.3 from 68.0. The inventories index plunged to 46.5, the lowest level in eight months. The vendor delivery index eased to 75.0 from 76.6, but continued to indicate notably slow product delivery speeds. Fifty-four percent of respondents reported slower delivery speeds while 3.9% reported a quickening.

The employment measure weakened last month to 55.1 from 59.6, though it remained elevated from its April 2020 low of 28.2. A lessened 21.2% (NSA) of respondents reported higher payrolls and a higher 10.9% reported a decline.

Pricing power remained strong. The prices paid index rose to 89.6 (NSA) from 85.6, the highest level since July 2008. A strengthened 80.1% of respondents reported higher prices compared to last April's low of 10%. Reporting price declines were 0.9% of respondents, down from 39.4% in April of last year.

Amongst other series in the ISM report, the order backlog measure strengthened to a record 68.2, up from 37.8 last April. The series dates back to January 1993. The new export order measure rose slightly to a lessened 54.9 from 54.5. The import series declined sharply to 52.2, the lowest level since June of last year.

The ISM figures are based on responses from over 400 manufacturing purchasing executives from 20 industries, which correspond to their contribution to GDP in 50 states. These data are diffusion indexes where a reading above 50 indicates expansion. The figures from the Institute for Supply Management can be found in Haver's USECON database; further detail is found in the SURVEYS database. The expectations number is available in Haver's AS1REPNA database.

ISM Mfg (SA) Apr Mar Feb Apr'20 2020 2019 2018
Composite Index 60.7 64.7 60.8 41.7 52.5 51.2 58.9
 New Orders 64.3 68.0 64.8 27.3 54.0 51.2 61.6
 Production 62.5 68.1 63.2 27.6 53.8 51.3 60.9
 Employment 55.1 59.6 54.4 28.2 44.3 50.9 56.9
 Supplier Deliveries 75.0 76.6 72.0 76.0 61.6 52.9 62.0
 Inventories 46.5 50.8 49.7 49.5 48.8 49.9 52.9
Prices Paid Index (NSA) 89.6 85.6 86.0 35.3 54.0 49.1 71.7
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