The ISM manufacturing index was unchanged in April at 48.6. Although contracting moderately, the recent months of data suggest that the manufacturing sector continues to hold up quite well compared to other parts of the economy. Again the survey sent a message of continued significant price pressures in the production pipeline.While the composite was unchanged, some reshuffling took place among the sub indexes. Generally a much weaker 'employment' index (45.4 vs. 49.2) was counterbalanced by a higher 'inventory' index (48.1 vs 44.9), a marginally higher 'production' index (49.1 vs. 48.7), and a marginally higher 'supplier delivery ' index (54.0 vs. 53.6). The 'new orders' index remained unchanged at 46.5 - the lowest level since 2001.
Overall, the forward-looking parts of the report had something for both the optimists and the pessimists. On the pessimist's side, the differential between 'new orders' and 'inventories' deteriorated (-1.6 vs 1.6) as the inventory index rose. This differential is now consistent with a production index a little above 45. On the optimist 's side, the customers' inventory situation showed a favourable development, as the 'customers' inventory ' index declined to 45.0 (previously: 51). Hence, when applying the differential between 'new orders' and 'customers' inventories' (1.5 vs -4.5), a more optimistic signal consistent with a production index at around 50 arises.
Elsewhere the orders backlog index jumped back into expansive territory (51.5 vs. 47.5) and the exports index remains robust (57.5 vs. 56.5) - both of which are positive developments.
Further, the survey continues to signal increasing headline and core price pressures, with both the 'price' index (84.5 vs. 83.5) and the 'supplier delivery' index (54.0 vs. 53.6) drifting higher. Usually the supplier delivery index is a reliable indication of core price pressures, but it is not very common for the index to drift higher in a period with contraction in the manufacturing sector. We are mostly inclined to attribute this o the significant pressures on global raw materials markets from robust growth elsewhere on the globe and not as a sign of domestic strength.