The Institute of Supply Management’s Index moved down 2.5 points on month, (m/m) to 52.8 for April 2019. This value is an encouraging sign for the manufacturing sector. The index has been greater than 50, (>50 = expansion) for thirty-two consecutive months. The new orders sub-index scored a 51.7. Overall, the ISM manufacturing index is strong and fundamentals remain favorable as the global economy strengthens and the U.S. dollar depreciates.
The ISM manufacturing index is based on surveys of 400 purchasing managers in 20 industries. The survey is a diffusion index calculated as a percent of responses. A value of 50 is neutral, while less than 50 is contracting and greater than 50 is expansionary.
Figure 1 breaks down the detail of the composite index and sub-indexes. The composite index score for April was 52.8. One year ago, the composite index was a strong at 57.3.
Figure 2 shows the history of the ISM manufacturing index from 2003 to present. On a 3 month moving average, (3MMA) basis, the index posted a value 56.73, down 2.3% 3 months year on year (y/y). When examined on a 12MMA y/y comparison, the index decreased by a slight 0.6% y/y.
Breaking down the sub-indexes for the monthly numbers: Inventory, (not seasonally adjusted) sub-index moved-up 1.1 points m/m to 52.9 in April. ISM notes that suppliers were overselling forecast and don’t foresee an end to the upswing in business, finding it difficult to hire skilled and unskilled labor, and seeing an increase in prices due to industry demand.
Of the 18 manufacturing industries, 13 reported growth in April, in the following order: Textile Mills; Electrical Equipment, Appliances & Components; Miscellaneous Manufacturing; Printing & Related Support Activities; Chemical Products; Nonmetallic Mineral Products; Plastics & Rubber Products; Machinery; Furniture & Related Products; Food, Beverage & Tobacco Products; Computer & Electronic Products; Paper Products; and Fabricated Metal Products.
The production sub-index decreased by 3.5 points to 52.3. The employment index moved down by 5.1 points to 52.4
An Institute for Supply Management respondent stated that “Business is steady. We expect business to grow throughout the second quarter, then level in the third and fourth quarter.” (Fabricated Metal Products)
Manufacturing has maintained in 2019, the ISM manufacturing report continues to be encouraging. This month’s results showed a jump in the cost of raw materials, with prices for steel and other materials increasing because of tariffs imposed by the Trump administration.
At Gerdau we closely monitor the ISM manufacturing index since it is an excellent barometer of the present strength as well as a window on the likely short-run future of US manufacturing.