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Manufacturing Growth Cools as Challenges Persist

May 2, 2016
Lax global demand and fallout from a weakened U.S. energy industry hurt the manufacturing sector.

Manufacturing expanded at a slower pace than forecast in April as factories continued to grapple with lax global demand and fallout from a weakened U.S. energy industry.

The Institute for Supply Management’s index declined by 1 point to 50.8, barely above the 50 level that indicates stagnation, the Tempe, Arizona-based group’s report showed Monday. The median forecast in a Bloomberg survey of economists was 51.4.

American factories have been beset by dollar strength and weak commodities prices for more than a year, as well as a recent cooling of household spending. While emerging economies are showing hints of stabilizing and the biggest cutbacks by U.S. oil producers have run their course, high business inventories relative to sales represent an additional hurdle for factories.

“Manufacturing continues to muddle through at a very low growth rate,” Brett Ryan, U.S. economist at Deutsche Bank Securities Inc. in New York, said before the report. “We’re dealing with the lagged impact of what previous dollar appreciation has done, and added to that we have a domestic inventory overhang, and that’s just going to keep manufacturing kind of on the sidelines.”

Estimates for the manufacturing index from 83 economists in the Bloomberg survey ranged from 48.2 to 53.

Shrinking Payrolls

Factory payrolls shrank in April for a fifth consecutive month, according to the ISM’s report.

A jobs report Friday from the Labor Department is projected to show employment in all industries held up in April. Economists are predicting payrolls climbed by about 200,000 last month after a 215,000 increase in March.

The ISM’s gauge of new orders declined to 55.8 last month from 58.3, while an index of order backlogs eased to 50.5. The group’s measure of production dropped to 54.2 from 55.3 in March.

In a sign that demand may be starting to recover among overseas customers, the ISM’s index of export orders crept up to 52.5 in April, the highest since November 2014, from 52.

Manufacturing in the world’s second-biggest economy rose in March to 50.2, the highest since June, according to the Chinese government’s Purchasing Managers’ Index.

The ISM’s results also showed that American manufacturers and their customers made greater strides toward reducing unsold goods. A measure of factory inventories dropped to 45.5 in April from 47 a month earlier, while a gauge of customers’ stockpiles fell to 46 from 49, indicating goods on hand were being reduced at a faster pace.

Meantime, manufacturers are paying higher prices for raw materials. The prices-paid index climbed to 59 in April, the highest since September 2014, from 51.5.

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