U.S. Factory Output Contracts for Sixth Consecutive Month

The U.S. manufacturing sector contracted for the sixth consecutive month in April, following a 28-month period of growth, according to the latest Manufacturing ISM Report.

The April Manufacturing PMI registered 47.1 percent, a 0.8 percentage point increase from the 46.3 percent recorded in March. This marks the fifth month of contraction for the overall economy after a 30-month expansion period.

The New Orders Index remained in contraction territory at 45.7 percent, a 1.4 percentage point increase from March's figure of 44.3 percent. The Production Index reading was 48.9 percent, a 1.1-percentage point increase compared to March's 47.8 percent. The Prices Index registered 53.2 percent, up 4 percentage points from the March figure of 49.2 percent.

The Employment Index rose into expansion territory, registering 50.2 percent, a 3.3 percentage point increase from March's reading of 46.9 percent. The Backlog of Orders Index fell to 43.1 percent, 0.8 percentage point lower than the March reading of 43.9 percent. The Supplier Deliveries Index figure of 44.6 percent is 0.2 percentage point lower than the 44.8 percent recorded in March, marking the index's lowest reading since March 2009.

Inventories Index dropped 1.2 percentage points to 46.3 percent, lower than the March reading of 47.5 percent. The New Export Orders Index reading of 49.8 percent is 2.2 percentage points higher than March's figure of 47.6 percent. The Imports Index remained in contraction territory at 49.9 percent, 2 percentage points above the 47.9 percent reported in March.

Despite the contraction, the Manufacturing PMI improved compared to the previous month, indicating slower contraction. The April composite index reading reflects companies continuing to manage outputs to better match demand for the first half of 2023 and prepare for growth in the late summer/early fall period.

Two of the six biggest manufacturing industries, Petroleum & Coal Products and Transportation Equipment, registered growth in April. However, new order rates remain sluggish, with panelists concerned about when manufacturing growth will resume. Panelists' comments registered a 1-to-1 ratio regarding optimism for future growth and continuing near-term demand declines.

Supply chains are prepared and eager for growth, as panelists' comments support reduced lead times for their more important purchases. Price instability remains and future demand is uncertain as companies continue to work down overdue deliveries and backlogs. Seventy-three percent of manufacturing GDP is contracting, up from 70 percent in March. However, fewer industries contracted strongly, with the proportion of manufacturing GDP with a composite PMI calculation at or below 45 percent being 12 percent in April, compared to 25 percent in March.

The five manufacturing industries that reported growth in April are Printing & Related Support Activities, Apparel, Leather & Allied Products, Petroleum & Coal Products, Fabricated Metal Products, and Transportation Equipment. The 11 industries reporting contraction in April include Furniture & Related Products, Wood Products, Nonmetallic Mineral Products, Electrical Equipment, Appliances & Components, Plastics & Rubber Products, Chemical Products, Machinery, Primary Metals, Computer & Electronic Products, Food, Beverage & Tobacco Products, and Miscellaneous Manufacturing.

Commodity prices reported both up and down, with copper, diesel, electrical components, electronic components, high-density polyethylene (HDPE), labor – temporary, plastic resins, polypropylene, steel, steel – carbon, steel – hot rolled, steel – stainless, and steel products on the rise.

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