The slowdown in the ISM manufacturing index indicated the sector expanded at the slowest pace of activity in over a year-and-a-half in April. Still-strained supply chains appear to be the reason for the pullback in activity, but there are hints sprinkled throughout the report of demand slowing more broadly in the sector.
Lack of Supply Remains Large Constraint on Activity
The ISM manufacturing index unexpectedly slowed 1.7 points to 55.4 in April. While this reading still indicates expansion in the sector (value above 50 threshold designates expansion from contraction), it suggests activity expanded at the slowest pace in over a year-and-a-half. The underlying details of the report point to a slight pullback in the demand for goods, but purchasing manager comments continue to blame out-of-whack supply chains. All nine of the highlighted industry comments referenced constrained supply impacting activity. A purchasing manager from the Electrical Equipment industry specifically said, “Business is strong. Backlog continues to grow due to new orders and inconsistent supply chain conditions. Shortages of components are the main factor limiting our production.” Indeed, the production component slipped nearly a full point in April to 53.6—the slowest pace of activity in just about two years. Evidence of continued pressure on supply extended beyond supplier comments and was evident in the 1.8 point rise in the supplier deliveries component to its highest value (67.2) in five months. We’ll likely continue to see some upward pressure on lead times over the next few months amid COVID-related mobility restrictions in China, and two industries (chemicals and miscellaneous manufacturing) specifically referenced China lockdowns as an additional risk to supply. The overall inventory index also plummeted nearly 4.0 points in April as manufacturers are still struggling to attain inputs. READ FULL ARTICLE>>