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US Manufacturing Growth Remains Slow

May 1, 2015
The new index report from the Institute for Supply Management remains at 51.5, stopping five straight months of slowing numbers, short of forecasts calling for 52.0.

A strong dollar contributed to a horizontal and slow month for domestic manufacturing expansion in April, as industry employment dropped for the first time in close to two years.

The Purchasing Managers’ Index (PMI) report, released Friday morning by the Institute for Supply Management (ISM), remained at 51.5, identical to March, after slowing for five straight months and six of the last seven. The initial forecast for the index was 52.0. The PMI hit a 12-month peak of 58.1 in August and was still at 57.9 in October.

“Still, the dividing line between growth and decline is 50%,” MAPI chief economist Daniel J. Meckstroth said, “so the report says April manufacturing production is rising, but the level suggests a slow growth rate.

“The increase in the value of the dollar, and particularly the strong U.S. growth relative to other advanced economies, is unbalancing trade. Foreign trade will be a major drag on manufacturing activity and the general economy this year and next.”

Among the disappointing numbers pointed out by Meckstroth and other economists was the disparity of growth between imports and exports – 54.0 and 51.5, respectively – and a contraction in manufacturing employment, now 48.3 – under 50.0 for the first time since May 2013 and at its lowest reading since September 2009.

“In some ways, this mirrors the slower hiring pace seen in the past two national releases, after experiencing average manufacturing job growth of roughly 15,500 per month over the past 15 months,” NAM chief economist Chad Moutray said. “Employment is a lagged indicator, however, and I would expect this index to return to modest growth in the coming months.”

Because manufacturing output is weaker now than any point this year, and because exports dropped for the first time in five months, “The survey results raise worries that the dollar’s appreciation is hurting the economy,” Markit chief economist Chris Williamson said.

Because of numerous May 1 holidays around the world, many nations did not release data Friday. Among those that did, Canada and Japan reported readings just below neutrality, and the United Kingdom topped the United States by less than a half point.

“The world as a whole is showing no signs of manufacturing strength,” HIS global insight economist Michael Montgomery said, “and the U.S. has the handicap of a strong dollar on top of weak demand for manufactured goods worldwide.

“Lethargy begets more lethargy unless there is a spark somewhere to stimulate global demand. That spark is either missing or hiding too deep to be seen at present. Some regions of the world like Europe are doing better than they were, but the prior conditions just were not very good. U.S. manufacturing is in a growth pause.”

One of the highlights of the report was a substantial increase in the Production Index from 53.8 in March to 56.0 in April, almost back to the 56.5 reported in January.

“Hopefully, this is a sign that the Federal Reserve’s manufacturing industrial production will accelerate into a spring production boom following a significant decline this past winter,” Meckstroth said.

“Falling prices for energy and other commodities are evident. The report suggests that the price decline decelerated somewhat in April. Deflation in commodity prices is good for the economy when it is the result of increased supply driving down prices. We believe manufacturing activity will repeat the pattern of last year and pick up briskly in the second and third quarters.”

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