Yet Again, Manufacturing Contracts: ISM

Yet Again, Manufacturing Contracts: ISM

May 1, 2023
"Price instability remains and future demand is uncertain as companies continue to work down overdue deliveries and backlogs."

For the sixth consecutive month, the manufacturing sector contracted according to the latest ISM report. This follows a 28-month period of growth. 

Timothy R. Fiore notes that even with 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."

The April Manufacturing PMI registered 47.1%, 0.8 percentage point higher than the 46.3% recorded in March. 

"Supply chains are prepared and eager for growth, as panelists' comments support reduced lead times for their more important purchases," Fiore noted. "Price instability remains and future demand is uncertain as companies continue to work down overdue deliveries and backlogs." 

Other Index highlight include:

  • The New Orders Index remained in contraction territory at 45.7%, 1.4 percentage points higher than the figure of 44.3% recorded in March.
  • The Production Index reading of 48.9% is a 1.1-percentage point increase compared to March's figure of 47.8%.
  • The Prices Index registered 53.2%, up 4 percentage points compared to the March figure of 49.2%.
  • The Backlog of Orders Index registered 43.1%, 0.8 percentage point lower than the March reading of 43.9%.
  • The Employment Index elevated into expansion territory, registering 50.2%, up 3.3 percentage points from March's reading of 46.9%.
  • The Supplier Deliveries Index figure of 44.6% is 0.2 percentage point lower than the 44.8% recorded in March; this is the index's lowest reading since March 2009 (43.2%).
  • The Inventories Index dropped 1.2 percentage points to 46.3 percent, lower than the March reading of 47.5%.
  • The New Export Orders Index reading of 49.8% is 2.2 percentage points higher than March's figure of 47.6%.
  • The Imports Index remained in contraction territory, though just barely, at 49.9%, 2 percentage points above the 47.9% reported in March."

What  Respondents are Saying

  • "Having invested heavily to de-risk the supply chain over the last three years due to COVID-19, we are looking to reset with a number of our suppliers to reduce inventory, which has grown steadily over that period. Lead times are generally coming down, although electronic components are still a concern." [Computer & Electronic Products]
  • "Business continues to contract, albeit slowly year over year. We are burning existing inventory when possible and catching up on orders. Suppliers are shipping materials at a faster pace, especially to get the payable process started at the end of the first quarter. Employment is steady, with manpower decisions based on expected order flow in the second quarter, which is subject to change. Staffing levels in our sector are not decreasing, but employment openings are slowing across the economy, which reduces the pool of replacement candidates. We are currently projecting that the third quarter will see some improvement in business, especially in our metals coating for the aerospace industry. But unforeseen circumstances — international or domestic — could change things quickly." [Chemical Products]
  • "Pricing pressures continue to plague daily operations. After consecutive years of inflation and aggressive pricing to our retailers, we are starting to see resistance in the willingness to pass along pricing to end consumers. Discounting has entered into conversations." [Food, Beverage & Tobacco Products]
  • "Faster deliveries and shorter lead times from suppliers. … Customers starting to talk build rate reductions for the second half of 2023." [Fabricated Metal Products]
  • "We seem to be in a season of contradictions. Business is slowing, but in some ways, it isn't. Prices for some commodities are stabilizing, but not for others. Some product shortages are over, others aren't. Trucking is more plentiful, except when it isn't. There's uncertainty one day, but not the next. The next couple of months should provide answers — or not. It's hard to make projections at the moment." [Primary Metals]

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