Manufacturing Growth Cools

US Factory Gauge Falls to Two-Year Low as Orders, Output Cool

May 1, 2019
Still, the measure indicates that manufacturing continues to expand, but at a slower pace.

A gauge of U.S. factories fell in April to the weakest level since late 2016, signaling that manufacturing headwinds extended into the second quarter as companies continue to confront uncertainty about trade.

The Institute for Supply Management index slumped to 52.8 from 55.3 the prior month, missing all estimates in Bloomberg's survey while holding above the 50 level that signals expansion. Three of five components declined, including new orders, employment and production, according to the report Wednesday.

Key Insights

The unexpected weakness adds to signs that uncertainty about global growth and trade is dimming the outlook for producers across the world's largest economy even as other measures of economic health have been looking more upbeat.

The gauge for export orders fell below 50 for the first time in three years while imports missed the threshold for the first time in two years, the latest evidence President Donald Trump's trade wars are weighing on factories.

ISM's employment gauge fell to near a two-year low, signaling weakness ahead of Friday's U.S. jobs report. Still, economists expect it to show April factory hiring rose after the first drop in more than a year and a half. Separate data released Wednesday from the ADP Research Institute showed U.S. companies added the most workers since July last month. 

The measure for new orders also slipped to near the weakest since 2016, indicating softer demand. At the same time, the inventories gauge increased, suggesting stockpiles continue to expand, a trend that will likely eventually reverse and be a drag on growth.

Additional Detail

An index of prices paid dropped to 50, a signal that inflation pressures are likely to remain muted. A gauge of supplier deliveries edged up to 54.6. Readings below 50 indicate faster deliveries, while those above 50 signal slowing.

The customer inventories index was little changed while the order backlogs gauge increased.

The main ISM manufacturing gauge has held above the 50 line that divides expansion and contraction since August 2016.

By Reade Pickert

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