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The Institute for
Supply Management’s (ISM) monthly sentiment survey showed that the
expansion in U.S. manufacturing decelerated noticeably in April. The PMI
registered 57.3%, down 2.0 percentage
points from the March reading.
(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. Only 2.6% of respondents
reported paying lower prices; 61.2% reported paying higher prices. "The
increases in prices across all industry sectors continues," said ISM’s Timothy
Fiore, noting “price increases in metals (all steels, steel components,
aluminum and copper), corrugate, wood, wood products and plastics.” Moreover,
the Prices sub-index is at its highest level since April 2011.
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The
pace of growth in the non-manufacturing sector -- which accounts for 80% of the
economy and 90% of employment -- also slowed (-2.0 percentage points) to 56.8%.
Price increases were somewhat more subdued in the service sector: 33% reported
higher prices; 4% lower prices.
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All
of the industries we track expanded in April. Respondent comments included the
following --
· Construction: "The
trade tensions are impacting purchasing of steel and are causing suppliers to
send letters of concern regarding contracted purchases for this year and the
future based on these proposed tariffs."
· Finance &
Insurance: "Economy is humming along. [Activity in] both residential and
commercial construction [is] apparent. Agriculture sector seems to be
moderating at these commodity price levels. The international trade situation
appears to be shifting on a minute-by-minute basis, which has folks
nervous."
· Public
Administration: "Construction
activity continues to remain strong in the region, resulting in capacity issues
and shortages of labor, materials and subcontractors."
Relevant
commodities --
* Priced higher: Caustic soda; corrugate and corrugated boxes; fuel (diesel and
gaoline); and wood.
* Priced lower: None.
* Prices mixed: None.
* In short supply: Construction subcontractors and labor.
IHS Markit’s
April surveys presented a much more upbeat view than did ISM’s.
Manufacturing -- U.S. manufacturing operating conditions improve at fastest rate since September 2014.
Key findings:
* PMI rises to highest level in over three-and-a-half years
* Output grows at quickest pace since January 2017
* Inflationary pressures intensify
Services -- New business growth fastest since March 2015.
Key findings:
* New orders increase at accelerated and sharp pace
* Upturn in business activity quickens
* Business confidence highest since May 2015
Commenting
on the data, Chris Williamson, Markit’s chief business economist said --
Manufacturing: “April saw US manufacturers reporting the strongest
monthly improvement in business conditions since September 2014. The survey
suggests the economy has started the second quarter on a solid footing and
sends an encouraging signal for GDP growth to accelerate after the modest 2.3%
rate of expansion seen in the first quarter.
“With
inflows of new orders rising at an accelerated pace, greater input buying and
business expectations regarding future production levels running at one of the
highest levels seen over the past three years, there’s plenty of evidence to
suggest strong growth will persist through May.
“The
upturn is being led by large firms, with smaller companies trailing behind but
nonetheless also seeing some of the best business conditions for three years.
“Warning
lights are being flashed in relation to inflation, however, with factories
reporting the strongest rise in prices for nearly seven years. Suppliers are
hiking prices in response to surging demand, while tariffs and higher oil
prices are also exerting upward pressure on costs. With the average price of
goods leaving factories rising at the fastest rate since 2011, consumer price
inflation looks set to accelerate.”
Services: “The improved service sector performance comes on
the heels of news of faster manufacturing growth, pointing to a welcome
broad-based strengthening of the economy at the start of the second quarter.
“As
such, the data support the view that second quarter GDP growth will come in
stronger than the 2.3% rate seen at the start of the year.
“The
two surveys also collectively point to another month of solid job gains,
commensurate with the official measure of non-farm payrolls rising by
approximately 200,000 in April.
“Perhaps
the most important development, however, is the upturn in price pressures.
Survey evidence indicates that rising demand has allowed increasing numbers of
companies to raise prices for both goods and services in recent months. Higher
oil prices are also pushing up costs. Measured across both manufacturing and
services, input costs are rising at the fastest rate since 2013, which will
inevitably put greater pressure on consumer prices in coming months, all of
which makes for a hawkish policy outlook.”
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.
