April Showers for the US Economy?

Looking a bit deeper into early April economic data, I detect some worrisome issues regarding the health of the economy. Let’s start with the April 2025 Nonfarm Employment Survey, specifically, the Manufacturing Index of Aggregate Weekly Hours for the manly guys on the factory floor. (We don’t care about the supervisors and suits in the C-suites because we know that they don’t produce things you can touch and feel.) This index of aggregate weekly hours is a proxy for output in the manufacturing sector. It represents the number of factory-floor workers times the weekly hours they toiled. This index does not take into consideration any changes in the workers’ productivity. As you can see in Chart 1, this index contracted by 5.6% annualized in April. One month does not a trend make, but …

Now, let’s dissect some of the data from the April 2025 Institute of Supply Management (ISM) Survey of Manufacturing. The various indices that are reported to the press are calculated by taking the percent of respondents saying things improved plus one-half of the percent saying that things remained the same. So, if things were great last month and they stayed that way, these respondents get one-half “vote”. Similarly for those who said things worsened last month and stayed that way, they also get one-half “vote”. I think that the “stayed the same” response lacks full information. But if we look at the percent saying things got better this month minus percent saying that things got worse this month, the net if you will, then we have an unambiguous qualitative measure of direction.

So, let’s look at the behavior of the manufacturing net index of production, as shown in Chart 2. Wow, the net was negative 9.7, the largest contraction in the current economic expansion period. The April ISM manufacturing production data reinforce the April manufacturing aggregate weekly hours data – i.e., manufacturing production looks to have contracted in April.

Staying with the April ISM Manufacturing Survey, it looks as though, on net, both export and import orders weakened (see Chart 3). But the weakening in export orders was of a greater magnitude than import orders. I can hardly wait to see how these data behave once the tariffs imposed by the US and those threatened by other countries take effect. (At the time of this writing, some US tariffs have taken effect. But you never know what tomorrow will bring.)

Lastly, let’s look at April sales of light motor vehicles. As shown in Chart 4, unit sales were down in April from their March surge. Even though April sales skidded 32% from March’s level, the April level remained relatively elevated. Presumably, the higher levels of March and April unit sales of light motor vehicles were motivated by trying to beat the onset of tariffs. Again, it will be interesting to observe the behavior of auto and truck sales once the tariffs have become fully effective. But hey, your kid doesn’t need thirty SUVs for Christmas. Two will suffice.

Although the April economic data that I (cherry)-picked do not suggest that the US economy has weakened severely, they do suggest some weakening before new tariffs have fully kicked in. My guess is that forthcoming economic data will show more weakness. Should the Fed cut the federal funds rate in reaction to the tariff-induced economic weakness? Only if it wants to sponsor stagflation. I view tariffs as being akin to a negative productivity shock. Rather than have people designing high-value IPhone software, we’ll divert their time, as Howie Nudnik might say, to assembling IPhones by screwing tiny screws into them. So, we will get more expensive IPhones with inferior software.