U.S. Manufacturing Activity Contracts Slower Than Expected In April

U.S. manufacturing activity contracted for the sixth consecutive month in April, according to a report released by the Institute for Supply Management on Monday, although the pace of contraction slowed by more than expected.

The ISM said its manufacturing PMI rose to 47.1 in April from 46.3 in March, with a reading below 50 indicating a contraction. Economists had expected the index to inch up to 46.6.

“The April composite index reading reflects companies continuing to manage outputs to better match demand for the first half of 2023 and prepare for growth in the late summer/early fall period,” said Timothy R. Fiore, Chair of the ISM Manufacturing Business Survey Committee.

The increase by the headline index partly reflected slower paces of contraction in both new orders and production.

The new orders index climbed to 45.7 in April from 44.3 in March, while the production index advanced to 48.9 in April from 47.8 in March.

The report also said the employment index jumped to 50.2 in April from 46.9 in March, indicating job growth in the manufacturing sector following two months of contraction.

On the inflation front, the ISM said the prices index surged to 53.2 in April from 49.2 in March suggesting moderate price growth following one month of marginally decreasing prices.

“Factories will lose steam over the next few months as a tighter lending environment, elevated interest rates, and deteriorating goods demand bite down on production,” said Oren Klachkin, Lead U.S. Economist at Oxford Economics.

He added, “Goods activity will be hit harder than services during the mild recession that we expect in H2 2023, as is typical during economic downturns.”

The ISM is scheduled to release a separate report on U.S. service sector activity in the month of April on Wednesday.

The services PMI is expected to rise to 53.1 in April from 51.2 in March, with a reading above 50 indicating growth in the sector.

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