The Economy

U.S. Manufacturing Growth Slows in April

The Institute for Supply Management's index falls to 50.8% but the rebound in oil prices may help bring the sector some relief.
Katie Kuehner-HebertMay 2, 2016

Growth in the U.S. manufacturing sector slowed last month but better days may be ahead with oil prices rebounding and the dollar weakening.

In its latest Report On Business, the Institute for Supply Management said its manufacturing index fell to 50.8% last month from 51.8% in March. Economists surveyed by MarketWatch had forecast the index would fall to 51.4%.

Since last summer, the index has ranged between 48% and 52% around the 50% mark that separates expansion from contraction.

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The reading for April “suggests that scattered evidence recently of improvement among manufacturers is probably a mirage,” MarketWatch wrote. “Companies have been hurt by a strong dollar and weak global economy, reducing exports. And a slump in the U.S. energy sector because of cheap oil has forced oil and natural gas producers to slash equipment purchases from very high levels just a few years ago.”

Eleven out of the 18 manufacturing industries that ISM tracks reported growth in April, while four industries reported contraction petroleum and coal products, transportation equipment, miscellaneous manufacturing, and furniture and related products.

The ISM’s new-orders index fell to 55.8% in April from 58.3%, and the employment gauge rose 1.1 points, but was negative at 49.2%.

Employment has been negative for five straight months and six of the last seven, according to the institute. Manufacturers, which employ about 12.3 million people, have eliminated almost 50,000 jobs since last July.

However, the industry seems to have bottomed out, with export orders rising to a 17-month high last month.

“The downtrend in the index which began in late 2014 is now over,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, told MarketWatch. “But we doubt manufacturing is about to stage a serious recovery.”

The Wall Street Journal noted that the index has now exceeded 50% for two straight months.

“Oil prices have moved higher in recent months and the dollar has weakened against other major currencies as Federal Reserve policy makers signaled a willingness to move slowly on raising short-term interest rates, potentially offering some relief for American manufacturers,” the WSJ said.