Chart of the day: Manufacturing grew at a slower rate in April

Manufacturing grew at a slower rate in back-to-back months as labor shortages continued to hamper production while demand moderated from January’s high.

The Institute for Supply Management’s manufacturing index registered 55.4%, the slowest growth rate since July 2020, and down from 57.1% in March. An index above 48.7% indicates expansion.

The employment component of the index dropped significantly, to 50.9% from 56.3% on the month, the lowest since last August. According to respondents in the ISM survey, the rate of workers quitting their jobs was higher than in previous months.

Demand grew for the 23rd straight month but showed signs of moderating, as the new order component of the index inched down to 53.5% in April, significantly below the pandemic average of about 65%.

Inflation pressure eased somewhat in April as the prices-paid component fell to 84.6% from 87.1%. But prices remained elevated near the pandemic high of 92.1 last June.

Supply constraints have also been holding production back. Inventories slowed down sharply on the month, as the subindex for inventories fell to 51.6 from 55.5. Global supply chain issues might become more challenging because of mass COVID-19 restrictions in China. About 15% of the survey’s respondents expressed concern about their Asian partners’ ability to deliver this summer.

The takeaway

We expect the manufacturing sector to continue to grow but at a slower rate for the rest of the year. The risks, however, continue to be around inflation and labor shortages that will most likely persist. On top of that, the global economic slowdown and a stronger dollar will affect U.S. exports of manufacturing products.