Mixed Results Across the Sector

The manufacturing sector contracted in April 2024 after one month of expansion. The April contraction broke a short-lived rebound in March. The return to contraction in April indicates ongoing challenges and uncertainty facing manufacturers.

The data suggests the manufacturing sector recovery remains uneven and vulnerable even as certain indicators show improvement. Key measures on production and employment indicate ongoing strains on output and hiring. Meanwhile, rising prices and supply chain difficulties represent lingering headwinds.

Details on Manufacturing PMI and New Orders Index

The Manufacturing PMI registered 49.2% in April, down 1.1 percentage points from March’s 50.3% reading. This drop back below the 50% threshold separating expansion from contraction provides evidence that the manufacturing sector declined in April after one month of growth.

The PMI contraction in April comes amid signs of slowing demand and ongoing supply-side challenges across the manufacturing sector. The data suggests that demand conditions have softened but are still gradually improving. However, production execution indicators retreated in April, suggesting the sector remains in the early stages of recovering from an extended downturn.

New Orders Index Fell to 49.1% Showing Contraction  

Similarly, the New Orders Index for April fell 2.3 percentage points to 49.1% from 51.4% in March. The decrease pulled the index back into contraction territory after briefly expanding in March. The decline in the new orders signaled that manufacturer demand deteriorated in April despite panelist comments about demand bottoming out.

The downturn in new orders provides further evidence of wavering demand conditions facing manufacturers early in Q2 2024. The uncertain demand environment compounds lingering supply chain troubles, production backlogs, and employment weaknesses weighing on the sector.

Analysis of What These Declines Indicate About Manufacturing Activity

The April pullbacks in both the PMI and New Orders Index after a one-month uptick reinforce that manufacturing sector recovery remains uneven, slow-moving, and susceptible to setbacks. Ongoing demand softness combined with persistent supply headwinds points to constricted investment spending and hiring plans from manufacturers until conditions substantively improve. 

However, panelist commentary did reflect slightly less pessimism related to order contraction compared to recent months. The April manufacturing data indicates the sector recovery continues to progress slowly despite significant persistent challenges.

Production and Employment Trends

The Production Index registered 51.3% in April, representing a 3.3 percentage point decrease from March’s reading of 54.6%. Despite the pullback, the production measure remains in expansion territory for the second straight month.

The April production reading indicates manufacturing output continued expanding but at a decelerated rate of growth during the month. Companies marginally increased production in April following more robust growth in March. The production gauge has spent most of the last year in contraction as manufacturers confronted low demand and supply chain turmoil. 

Employment Index Showed Continued Contraction but at Slower Rate 

The ISM® Employment Index registered 48.6% in April, up 1.2 percentage points from 47.4% in March. The uptick marked the seventh consecutive month of employment contraction in the manufacturing sector. However, April reflected the best reading of 2024 so far, following significant workforce reductions in Q1 2024.

Comments point to companies slowing the pace of job cuts relative to March. However, hiring remains largely frozen across the sector outside of some transportation equipment and computer products manufacturers. Elevated uncertainty continues weighing on manufacturing employment despite small signs of labor market stabilization.  

Output and Hiring Trends

The April production and employment indexes indicate manufacturing output, and payrolls are no longer in free fall but remain depressed. Lean inventories and backlogs signal production increases could persist in coming months even as demand wavers. However, lingering uncertainties likely keep hiring muted until order flows substantially improve.  

The April data provides tentative signals of output and hiring conditions bottoming out for the struggling sector. However, the early-stage recovery remains highly vulnerable to setbacks amid continued precarious demand and difficult supplier conditions. A period of sustained expansion in orders and production will be required to spur meaningful, renewed employment growth.

Supplier Deliveries and Inventories

The Supplier Deliveries Index registered 48.9% in April, down one percentage point from March’s reading of 49.9%. The index has remained in contraction and indicated faster supplier deliveries for two straight months after 16 consecutive months of slower deliveries.

Meanwhile, the Inventories Index was flat at 48.2% in April, signaling inventories continued contracting during the month. Survey panelists indicate a willingness to build inventories but are remaining cautious amid uncertain demand. 

What This Signals About Supply Chain Conditions

The slightly quicker supplier deliveries suggest supply chains continue normalizing from pandemic-era disruptions. Suppliers appear better positioned to meet customer needs and reduce lead times. However, the previous disruptions in the Red Sea and Suez Canal are causing some residual delivery and cost impacts.

Continued inventory drawdowns reflect a deliberate approach by manufacturers as they await stronger signals of demand improvement. Lean inventories could support further production increases in the coming months. But lingering delivery and material cost headwinds pose risks to the still-tenuous recovery.

The faster supplier deliveries and lean inventories indicate cautious optimism about supply chain healing but also serve as reminders of lingering fragility. Manufacturers await further confirmation of demand resilience before confidently re-investing and rebuilding stockpiles.

Prices and Imports/Exports

The ISM® Prices Index registered 60.9% in April, jumping 5.1 percentage points compared to March’s reading of 55.8%. The sharp monthly increase marked the index’s highest level since June 2022, indicating rapid price inflation facing manufacturers.

Higher prices for commodities like steel, aluminum, and oil drove the uptick. The data shows input cost inflationary pressures intensified for manufacturers during April even as other measures reflected slowing growth.

Exports Contracting While Imports Growing

Meanwhile, supply chain impacts caused exports and imports to head in opposite directions in April. The New Export Orders Index fell into contraction at 48.7% even as the Imports Index continued expanding at 51.9%.

Import growth was driven by manufacturers looking to replenish inventory stockpiles to improve delivery times and keep pace with any rebound in demand. However, rising ocean freight costs posed challenges.

Implications for Inflation and Trade  

The April data reflects risks from persistent inflation and supply chain uncertainty facing manufacturers. Rapidly rising input costs squeeze producer profit margins. And while import activity shows the supply chain healing, the export downturn threatens overseas sales and growth prospects.

As the Federal Reserve keeps interest rates high to combat inflation, price increases remain a concerning headwind facing the manufacturing sector. Renewed overseas demand and shipping cost relief are needed to spur stable growth conditions. The trends bear monitoring amid high inflation and economic policy uncertainty.

Industry Performance Breakdown

The April ISM® report showed nine manufacturing industries reporting growth while seven reported contraction. The industries seeing expansion were generally less materials-intensive categories, while struggling sectors were concentrated in metals and machinery manufacturing.

Within the PMI® calculation, just one of the five underlying components that make up the headline index (Production Index) remained in expansion territory in April. This was down from 2 positive components in March, underscoring the reversal in momentum during April across leading industry groups.  

Notable Trends in Major Manufacturing Sectors

The six largest manufacturing sectors had mixed results in April. Both the Transportation Equipment and Chemical Products categories reported growth during the month based on increases in production and new orders. 

However, the Fabricated Metal Products industry contracted amid lower production and new orders. The sector tied to construction and equipment manufacturing has struggled in recent months with signs of stabilization remaining elusive.

Machinery and Computer & Electronic Products manufacturers also contracted according to ISM® data. New orders pulled back in both sectors as demand recovery fluctuated. Continued volatility in order activity poses challenges for durable goods producers in the coming months.

Pockets of growth in April were counterbalanced by persistent weakness in industries like fabricated metals and construction equipment. Larger sectors showed resiliency, but an uneven demand environment persists, especially for producers reliant on capital investment cycles.

The April reversal serves as a reminder of the remaining risks confronting manufacturing as the sector works towards post-pandemic stability. Inflationary pressures show little sign of abating, while supplier delivery speeds and material costs are still impacted by global disruptions.

Manufacturers also await more reliable signs of demand momentum building. The uneven recovery path supports caution about near-term growth prospects until these persistent drags show sustained improvement. Careful monitoring of prices, stable demand signals, and supply chain conditions remain warranted in the coming months.