US factory activity contracted for a sixth consecutive month in April.
That was the bad news. The good news in Monday’s sole meaningful data release from the world’s largest economy was that the headline reading on the nation’s marquee manufacturing survey held up better than expected.
At 47.1, ISM manufacturing narrowly beat consensus, which was looking for 46.8. The range of guesses from more than five-dozen economists was 45.6 to 48.7.
The final read on S&P Global’s gauge for April, also released on Monday, was little changed from the flash print which, you might recall, suggested factory activity in the US expanded for the first time since October.
“While the upturn is in part linked to greatly improved supply chains, helping reduce backlogs of orders, April also saw a welcome upturn in new order inflows for the first time since last September,” Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said.
Under the hood, most key ISM components improved. New orders rose, but at 45.7, the index remained subdued. Production moved up to 48.9, within a point of the 50 neutral line and the highest since November. Notably, the employment index jumped sharply, charging back into expansion territory at 50.2 from 46.9 in March.
“The April composite index reading reflects companies continuing to manage outputs to better match demand for the first half of 2023 and prepare for growth in the late summer/early fall period,” ISM’s Tim Fiore remarked, adding that “new order rates remain sluggish as panelists remain concerned about when manufacturing growth will resume.”
The ISM anecdotes were mixed. There was nothing like dejected despondency, but nothing in the way of ebullient enthusiasm either. I should note that the prices gauge moved back above the 50 demarcation line.
At 53.2, the price index was the highest since July of last year. Do note the irony: March’s read on the services-side price gauge was the lowest since July 2020. Out of the frying pan, into the fire, I suppose.
I’ve said this over and over: Goods is no longer a disinflationary tailwind for the Fed. By most accounts, the goods side is now contributing to inflation again. If oil prices were to rebound, the situation could get perilous fairly quickly.
As S&P Global’s Williamson put it Monday, “The downside was a reigniting of inflationary pressures, with a stronger order book encouraging more firms to pass through higher costs to customers.”
Although an ISM respondent in Food, Beverage & Tobacco Products said “discounting has entered into conversations” amid the first signs of “resistance in the willingness to pass along pricing to end consumers,” that’s not happening across-the-board. Not yet, anyway.
All in all, Monday’s manufacturing PMIs hinted at stagflation, and the uptick in the hiring indicators suggested the labor market is resilient even on the factory side, where activity is sluggish.
One ISM respondent offered perhaps the best assessment of the macro environment I’ve read this year, present company included. “We seem to be in a season of contradictions,” the panelist said. “Business is slowing, but in some ways, it isn’t.”
