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ISM number slip, but growth continues

PMI is down slightly from peak, but stays above 60 for fourth straight month

By SOURCE: Institute of Supply Management May 9, 2011

Economic activity in the manufacturing sector expanded in April for the 21st consecutive month, and the overall economy grew for the 23rd consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business.

The report was issued today by Norbert J. Ore, chair of the Institute for Supply Management Manufacturing Business Survey Committee. "The recent trend of rapid growth in the manufacturing sector continued in April as the PMI registered above 60% for the fourth consecutive month. The New Orders and Production Indexes continue to drive the PMI, as they have both exceeded 60% for five consecutive months. 

“Manufacturing employment appears to have developed significant momentum, as the Employment Index readings for the first four months of 2011 are the highest readings in the last 38 years. Inventory growth also took place in April after two months of destocking; however, the inventory restocking would appear to be necessitated by the strong performance in new orders. While the manufacturing sector is definitely performing above most expectations so far in 2011, manufacturers are experiencing significant cost pressures from commodities and other inputs."

Of the 18 manufacturing industries, 17 are reporting growth in April, in the following order: Wood Products; Plastics & Rubber Products; Primary Metals; Transportation Equipment; Fabricated Metal Products; Computer & Electronic Products; Apparel, Leather & Allied Products; Machinery; Textile Mills; Paper Products; Electrical Equipment, Appliances & Components; Nonmetallic Mineral Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; Chemical Products; Printing & Related Support Activities; and Petroleum & Coal Products. Furniture & Related Products is the only industry reporting contraction in April.

Manufacturing continued its rapid growth in April as the PMI registered 60.4%, a decrease of 0.8 percentage point when compared to March’s reading of 61.2%. A reading above 50% indicates that the manufacturing economy is generally expanding; below 50% indicates that it is generally contracting.

A PMI in excess of 42.5%, over a period of time, generally indicates an expansion of the overall economy. Therefore, the PMI indicates growth for the 23rd consecutive month in the overall economy, as well as expansion in the manufacturing sector for the 21st consecutive month. "The past relationship between the PMI and the overall economy indicates that the average PMI for January through April (61%) corresponds to a 6.5% increase in real gross domestic product,” Ore said. “In addition, if the PMI for April (60.4%) is annualized, it corresponds to a 6.3% increase in real GDP annually."

What respondents are saying:

  • "Rapidly rising raw material costs putting extreme pressure on profits." (Food, Beverage & Tobacco Products)
  • "Plastic resin product prices are climbing so fast that [suppliers] are attempting to increase prices on orders already accepted but not [yet] delivered." (Chemical Products)
  • "Customers are rebuilding safety stock levels of inventory, and also trying to buy ahead of material price increases." (Plastics & Rubber Products)
  • "Market continues to get stronger month over month. Recovery is faster than anticipated." (Transportation Equipment)
  • "Pressure from offshore suppliers continues to mount with exchange rate increases and seasonal demand for capacity." (Miscellaneous Manufacturing)

www.ism.ws

Institute of Supply Management

– Edited by Gust Gianos, Plant Engineering, www.plantengineering.com