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May 1, 2019 Blog 1 min read
Activity across the nation’s manufacturing sector grew at a slower-than-expected pace, as the slowdown in economic activity was felt again in April.
5-1-19 ISM ChartActivity across the nation’s manufacturing sector grew at a slower-than-expected pace, as the slowdown in economic activity was felt again in April. The ISM Manufacturing Index came in at 52.8 for the month, falling below economists’ expectations for a reading of 55.0.

The report was a moderate disappointment, although it did confirm that the manufacturing activity grew for the 32nd consecutive month. Still, that pace was the weakest in about two-and-a -half years.

Among the key components, new order growth slowed in April after a nice pickup the prior month. New orders are seen as a strong leading indicator of the manufacturing sector’s health and alone comprises 30% of the index. At 51.7, it remains in expansionary territory, but has continued to weaken over time.

Also noteworthy was the softening in employment and production, further reflecting the slowdown in demand. Still, half of the 18 industries reported outright increases in employment, while only five indicated a decrease in their labor force.

It’s clear that the lingering uncertainty related to trade continues to cast a shadow across the sector. Export orders contracted in April, ending over three years of consecutive monthly gains. However, the source of weakness extends beyond the ongoing negotiations between the U.S. and China. Weakness in Europe and the lack of resolution around if, when, and how the divorce between the UK and Eurozone will be finalized appears to be a growing headwind for an already lackluster European economy.

As illustrated by the Q1 GDP report, the economy continues to expand, although the 3.2% reported growth was probably rosier than the underlying reality, effectively masking underlying weakness in consumer spending and housing in particular.

The bottom line is that the economy has softened considerably in the past few quarters. While a broad swathe of data remains safely expansionary, it’s not yet clear that certain indicators have bottomed.

The good news is that the cyclically-sensitive manufacturing sector is still growing; the bad news is that the pace of that growth is still slowing, leaving some open questions about when it will find its footing.
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