The word of the day is “stagnation”.
Both the ISM and Market manufacturing diffusion Indexes converged on the same number this month, 50.8.
Numbers above 50 represent growth, numbers below 50 contraction. 50 is stagnation.
Markit reports the US Manufacturing PMI is “close to stagnation in April”.
Key Points
- Manufacturing PMI points to weakest performance since September 2009
- Production volumes and payroll numbers rise only fractionally
- New business levels expand at slowest pace so far in 2016
Summary
April data indicated that U.S. manufacturers started the second quarter of 2016 with a renewed slowdown in production and new business growth. At the same time, employment levels were close to stagnation and input buying dropped at the fastest pace for two-and-a-half years, amid reports of slower than expected demand during the latest survey period.
Adjusted for seasonal influences, the final Markit U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) registered 50.8 in April, down from 51.5 in March and only slightly above the 50.0 no-change threshold. The latest reading was weaker than the average seen in Q1 2016 (51.7) and signalled the slowest improvement in overall business conditions for just over six-and-a-half years.
Output volumes were close to stagnation in April, with the latest survey pointing to the weakest rise since the current period of expansion began in October 2009.The latest fall in unfinished business was the sharpest since September 2009. This contributed to a near-stalling of payroll numbers in April, with the rate of job creation the weakest for just under three years.
ISM Report on Business
The Report On Business® results table follows.
| Index | April | March | PP Change | Direction | Rate of Change | Trend in Months |
|---|---|---|---|---|---|---|
| PMI® | 50.8 | 51.8 | -1.0 | Growing | Slower | 2 |
| New Orders | 55.8 | 58.3 | -2.5 | Growing | Slower | 4 |
| Production | 54.2 | 55.3 | -1.1 | growing | Slower | 4 |
| Employment | 49.2 | 48.1 | 1.1 | Contracting | Slower | 5 |
| Supplier Deliveries | 49.1 | 50.2 | -1.1 | Fatster | From Slower | 1 |
| Inventories | 45.5 | -1.5 | 47.0 | Contracting | Faster | 10 |
| Customers’ Inventories | 46.0 | -3.0 | 49.0 | Too Low | Faster | 3 |
| Prices | 59.0 | 51.5 | 7.5 | Increasing | Faster | 2 |
| Backlog of Orders | 50.5 | -0.5 | 51.0 | Growing | Slower | 2 |
| Exports | 52.5 | 52.0 | 0.5 | Growing | Faster | 2 |
| Imports | 50.0 | 49.5 | 0.5 | Unchanged | From Contracting | 1 |
Bloomberg Econoday on PMI
Highlights
The manufacturing sector has started out the second quarter completely flat, based at least on the April PMI which fell 7 tenths to 50.8. New orders did rise modestly in the month but that’s the only good news in the report. Export orders, contracting at the fastest pace in more than a year, are not showing any lift yet from the lower dollar. And higher oil prices are not helping capital spending in the energy sector which remains a major negative for the sample. Output is flat, backlog orders are in contraction for a third straight month, and employment has completely stalled. And manufacturers continue to work down inventories as much as possible. Prices for raw materials, reflecting higher costs for oil-related products, did rise but not selling prices which are decreasing further. This report isn’t closely watched but the ISM manufacturing report is, and similar results for ISM, which will be posted at 10:00 a.m. ET, could shake the U.S. outlook and perhaps global markets with it.
Emphasis mine.
Bloomberg Econoday on ISM
Highlights
April’s 50.8 for the ISM manufacturing index may be moderately below expectations for 51.5 but details in the report are positive. New orders did slow by 2.5 points but the level at 55.8 still points to a very solid rate of growth. New export orders, offering positive evidence on the effects of the lower dollar, are also positive, unchanged at 52.5 which isn’t dramatically above breakeven 50 but is still very solid for this reading and the best since December 2014. Production did slow 9 tenths but at 54.2 is also more than respectable. Backlog orders are still rising, though just barely at 50.5, but this along with March’s 51.0 are the best two months for this reading also since December 2014.
Now the weaknesses in the report, led by employment which did rise 1.1 points but is still below 50 at 49.2. Supplier deliveries, down 1.1 points at 49.1, pulled the composite index lower in the month and likely reflect lack of inventories at suppliers. And ISM’s sample continues to be very defensive regarding inventories with both raw materials and finished goods in accelerating contraction. Prices paid, at 59.0 for a sharp 7.5 point gain, reflects higher oil-related costs. There are no indications in this report on selling prices but other readings, including from this morning’s April PMI, have been negative.
But there’s reasons for optimism in this report centered entirely where it must be — in orders.
Emphasis again mine.
Markit Chief Economist on PMI
Commenting on the final PMI data, Chris Williamson, chief economist at Markit said: The April PMI data suggest there’s no end in sight to the current downturn in manufacturing activity. The survey indicates that factory output is dropping at an annualized rate of approximately 3%, and factory headcounts are being culled at a rate of around 10,000 per month.
Destocking is also very much in evidence as companies often reported weaker than expected demand and exports are slumping at the fastest rate for one and a half years.
Rather than reviving after a disappointingly weak first quarter, the data flow therefore appears to be worsening in the second quarter, raising question marks over whether GDP growth will improve on the near-stalling seen in the first three months of the year.
Cheerleading
The two reports are in sync regarding employment, destocking, and prices (led by energy). New orders may be up but new export orders fell in the PMI report.
One needs to be cautious here.
New orders up by 0.5% in a small company will offset new orders down by 3.0% in a larger company, or vice versa.
In light of other economic data, and with noticeable weakness in similar areas between the reports, Chris Williamson is far more likely than Econoday to have pegged the analysis of these reports.
Mike “Mish” Shedlock
