Manufacturing growth unexpectedly eases in April
The ISM Manufacturing Index expanded in April, but the pace of growth in activity eased unexpectedly to 55.4. Economists had forecast an improvement to 57.6 from the March reading of 57.1. A reading above 50 is indicative of expanding manufacturing activity.
The unexpected decline was relatively broad-based, as softening was apparent to varying degrees in new orders, production, backlogs, and inventories.
The most notable change was in the employment subindex, which slipped from 56.3 in March to 50.9 in April. The underlying story for hiring managers was little changed: businesses are still struggling to hire the workers they need. Once again, it wasn’t a lack of demand that’s crimping payroll growth but the difficulty in finding workers to fill job openings. Tight labor market conditions in the United States certainly aren’t limited to the nation’s manufacturers though, as the dearth of available workers is evident across all sectors and regions.
Although the strong rebound in GDP over the past two years was a much better outcome than a deeper and longer recession would have been, it has come at a price. The scars from the pandemic are still readily apparent in the challenges faced by producers. Although progress has been made in repairing supply chains and inventory imbalances in some sectors, shortages and rising prices are still significant challenges facing a wide range of industries.
It’s easy to think of an economic slowdown as a consequence of falling demand, but the current challenges in the manufacturing sector clearly illustrate the supply-side risk to growth. Consumers can’t buy what they can’t find, even if they have the appetite and means to do so.
The most notable exception is for exports, where demand has softened, largely as a result of COVID-19-related shutdowns in Asia and the conflict in Ukraine. Although less significant than domestic demand, rising recession risk in Europe and slower growth in Asia represent growing headwinds to exporters.
The bottom line: The manufacturing sector remains tilted toward growth, but conditions are still far from “business as usual.” The longer that global supply chains remain kinked and hiring challenges persist, the greater the risk to demand destruction from rising prices.
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