April 2017 ISM and Markit Surveys

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The Institute for Supply Management’s (ISM) monthly opinion survey showed that the expansion in U.S. manufacturing decelerated further during April. The PMI registered 54.8%, down 2.4 percentage points from March. (50% is the breakpoint between contraction and expansion.) ISM’s manufacturing survey represents under 10% of U.S. employment and about 20% of the overall economy. Six of the sub-indexes had lower values, while four (production, inventories, exports and imports) had higher values. 

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The pace of growth in the non-manufacturing sector -- which accounts for 80% of the economy and 90% of employment -- rebounded from March’s drop when rising by 2.3 percentage points, to 57.5%. Seven sub-indexes exhibited higher values, while three (employment, imports, and inventory sentiment) were lower. 

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Of the industries we track, only Ag & Forestry contracted; Wood Products was unchanged. “Business level increasing,” wrote one Construction respondent. “More project inquiries are being received.”

Relevant commodities --
* Priced higher: Diesel and gasoline; labor (both construction and general); lumber/ corrugate; corrugated boxes; oil.
* Priced lower: None.
* Prices mixed: None.
* In short supply: Labor (both construction and general).

ISM’s and IHS Markit’s surveys were directionally consistent. Both firms exhibited decelerating manufacturing growth; both also showed expansion in services, although Markit’s survey was considerably less upbeat than ISM’s.

Commenting on the data, Chris Williamson, Markit’s chief business economist said:

Manufacturing -- “Manufacturers reported that growth of production and order books have slowed markedly since peaking in January, with April seeing the weakest improvements for seven months.

“The signs of slowing growth are most evident in the domestic consumer sector, but investment goods manufacturers continue to fare well, enjoying stronger capital equipment spending from the energy sector in particular. Exports have also perked up, with April seeing the steepest increase in foreign orders for eight months.

“Price pressures have meanwhile risen to a two-and-a-half year high, which is likely to feed through to final prices paid for goods consumers in coming months.

“A more upbeat picture came from hiring, which picked up in April, as did optimism about business conditions in the year ahead, suggesting firms are expecting order books continuing to improve in coming months.”

Services -- “The final services PMI came in above the earlier flash estimate but remained only marginally higher than March’s six-month low.

“Combined with a weak manufacturing PMI reading, the surveys suggest that business activity is growing at a slower pace than seen over the first quarter as a whole.

“However, a robust rise is likely to be seen in second quarter GDP as the official numbers exhibit greater seasonality than the PMI, with consistently weak first quarters being typically followed by a rebound in subsequent periods. For this very reason, GDP data seemed to signal weaker growth than implied by the PMI in the first quarter of 2017.”

The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.