There were two slightly conflicting reports on U.S. manufacturing released this morning. First, the purchasing managers' index (PMI) from IHS Markit ended April at 56.5. That is the highest print in 42 months and perhaps suggests that GDP growth will pick up this quarter after Q1’s modest 2.3 percent pace of expansion. Much of the strength in April was due to higher rates of production and new orders, which helped offset the continued slowdown in job creation. Input cost inflation also weighed on activity last month, exacerbated by “greater global demand for raw materials and recently introduced tariffs.”
Manufacturers, though, still appear able to pass the increased costs on to clients, as average prices charged rose last month at the quickest pace since 2011. Chris Williamson, Markit’s chief business economist, added that “With inflows of new orders rising at an accelerated pace, greater input buying and business expectations regarding future production levels running at one of the highest levels seen over the past three years, there’s plenty of evidence to suggest strong growth will persist through May.” Much less encouraging was the Institute for Supply Management's (ISM's) manufacturing index, also released this morning, which ended April at 57.3. That is significantly worse than expected and the lowest headline reading since July of last year, albeit still well above pre-election levels. Measures of new orders, production, employment, foreign trade, and margin strain all deteriorated last month, but comments from surveyed managers were cautiously optimistic.
Sources: Econoday, IHS Markit, ISM, Bloomberg, ZH, FRBSLPost author: Charles Couch