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ISM Manufacturing Index Improves, Remains in Contraction

Bill Koenig
By Bill Koenig Senior Editor, SME Media

The manufacturing economy remained in contraction last month while improving slightly, the Institute for Supply Management said today.

The Tempe, Ariz.-based group’s manufacturing index, known as the PMI, registered at 47.1% in April. That was better than March’s 46.3%.

An index reading above 50% indicates economic expansion, below that mark shows contraction. April was the sixth consecutive month in negative territory.

There were few signs in the April report that the manufacturing economy will improve noticeably soon. The index is based on a survey of executives in 18 industries. The PMI is considered a leading economic indicator and a barometer of where manufacturing is headed.

It won’t be until the year’s third quarter “for any meaningful recovery,” Timothy R. Fiore, chair of ISM’s Manufacturing Business Survey Committee, said on a conference call. “It’s difficult to say what the future looks like.”

The Federal Reserve is raising interest rates to slow the economy and combat inflation. Fiore said April’s PMI report may still be too robust for the Fed’s liking.

“We’re probably not decelerating fast enough,” Fiore said.

In April, five industries reported economic expansion, including printing, coal & petroleum, transportation equipment, and fabricated metal products. Eleven industries reported economic contraction, including machinery, primary metals, and miscellaneous manufacturing.

The PMI has averaged 50.1% in the past 12 months.

ISM’s New Orders Index improved to 45.7% in April from 44.3% the month before. Eight industries reported an increase in orders, with six reporting a decline. New orders are important because they spur increased output later.

The group’s Production Index reached 48.9% last month, up from 47.8% in March. Eleven industries reported increased output, with five reporting a decline in production.

The institute’s Employment Index moved into positive territory in April at 50.2%, an improvement from 46.9% the month before. Seven industries reported employment increases while five reported job cuts.

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