April 2024 ISM and S&P Global Surveys

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The Institute for Supply Management‘s (ISM) monthly sentiment survey of manufacturers reflected a return to contraction in the sector during April. The PMI registered 49.2%, down 1.1 percentage points (PP) 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. Prices paid accelerated (+5.1PP, to 60.9%) while customer inventories shrank more slowly (+3.8PP, to 47.8%) and production decelerated (-3.3PP, to 51.3%). 

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Concurrent activity in the services sector -- which accounts for 80% of the economy and 90% of employment -- also contracted (-2.0PP, to 49.4%). Inventories expanded (+8.1PP, to 53.7%) along with sentiment reflecting inventories are too high (+7.2PP, to 62.9%); as with manufacturing, the increase in prices paid was substantial (+5.8PP, to 59.2%).

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Changes in S&P Global‘s headline index value for manufacturing declined to 50.0%, from the March reading of 51.9%, which “points to stable business conditions at the start of 2Q.” Also, the services sector “fell for the third month running in April to 51.3 from 51.7 in March. The index pointed to a modest monthly increase in business activity, and one that was the slowest since last November.” Details from S&P Global’s surveys follow --

Manufacturing. New orders down for first time in four months.

Key findings:

• Softer rise in output amid lower new business
• Job creation sustained
• Selling price inflation at three-month low

 

Services. Slower rise in services activity amid renewed fall in new orders.

Key findings:

• Growth of activity at five-month low
• New orders fall for first time in six months
• Employment reduced for first time in 46 months

 

Commentary by Chris Williamson, S&P Global’s chief business economist --

Manufacturing. “Business conditions stagnated in April, failing to improve for the first time in four months and pointing to a weak start to the second quarter for manufacturers. Order inflows into factories fell for the first time since December, meaning producers had to rely on orders placed in prior months to keep busy.

“However, there are some encouraging signs. The drop in orders appears to have been largely driven by reduced demand for semi-manufactured goods -- inputs produced for other firms -- as factories adjust their inventories of inputs. In contrast, consumer goods producers reported a further strengthening of demand, hinting that the broader consumer-driven economic upturn remains intact.

“Producers on the whole also seem confident enough in the business outlook to continue adding to payroll numbers at a pace that compares well with the average seen over the past two years, investing further in operating capacity.

“From an inflation perspective, it was also reassuring to see prices charged for goods rise at a slower rate than the 11-month high seen in March. The rate of increase nevertheless remains elevated by historical standards -- and well above the average seen in the decade prior to the pandemic -- as firms continued to pass higher commodity prices on to customers.”

 

Services. “Service sector growth slowed in April to point to a sluggish start to the second quarter for the US economy. Alongside a concomitant cooling in the rate of growth of manufacturing output, the weaker service sector performance means overall business activity grew in April at the slowest rate seen so far this year. At current levels, the PMI indicates that GDP is expanding at a modest annualized rate of approximately 1.5% so far in the second quarter.

“Demand has weakened, as signaled by the first fall in new orders for goods and services for six months, in part a reflection of both businesses and households adjusting to higher costs and the prospect of higher for longer interest rates. Business optimism has likewise cooled, dropping to the lowest since November, and companies are taking a more cautious approach to staffing levels.

“From an inflation perspective, the April survey brought some good news in that prices charged for services rose at a much reduced rate, registering one of the smallest increases seen over the past four years as greater competition and lower wage growth were reported to have taken some of the heat out of price setting.”

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.