Drop in Manufacturing in April is Worrisome

June 1, 2011
ISM's Index is at lowest in past year

While the Institute for Supply Management's PMI Index for May was at 53.5%, it is considerably below April's 60.4%.

"It was inevitable that the ISM Index would fall below 60. But a nearly 7 percentage point drop over the course of one month that was partially catalyzed by a more than 10 percentage point decline in the new orders component, and a nearly 10 percentage point drop in the production index, is worrisome of a sharper than expected moderation," explains Cliff Waldman, economist for the Manufacturers Alliance/MAPI.

"Further, the backlog of orders index, an indicator of the near-term pressure on the production schedule, not only also fell by more than 10 percentage points but is now close to the 50% level that separates growth from contraction," Waldman added.

The New Orders Index registered 51% in May, which is a decrease of 10.7 percentage points when compared to the 61.7% reported in April. This is the 23rd consecutive month of growth.

ISM's Production Index registered 54% in May, compared to the April reading of 63.8%.

The Employment Index, which has grown for the past 20 months, registered 58.2% in May, compared with 62.7% in April. This is the 20th consecutive month of growth in manufacturing employment.

The ISM Prices Index registered 76.5% in May, lower than the 85.5% reported in April.

"Earlier in its recovery, manufacturing had the wind at its back from a very pronounced rebuilding of inventories and a quick rebound in the growth rate of key emerging market economies," Waldman said. "At this point, however, elevated commodity prices, slowing global growth, and an increasingly questionable outlook for the U.S. economy are creating headwinds for the factory sector, which thus far has been the one strong element in an otherwise sluggish U.S. economic rebound."

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