May certainly hasn’t gotten off to the best start in terms of market performance or economic data. A case in point? Today’s ISM Manufacturing report for the month of April. While economists were forecasting the headline reading to come in at a level of 58.5, the actual reading came in 1.2 points weaker at 57.3. That’s the weakest headline reading since last July and the weakest report relative to expectations since last April’s report. While the report was a disappointment, keep in mind that two months ago, the index was at its highest level since 2004.
The table below breaks down this month’s report by each of the index’s sub-components and shows their m/m and y/y change. Breadth in this month’s report was skewed to the negative side on a m/m basis, but positive on a y/y basis. Production saw the largest m/m decline, which also put it into negative territory on a y/y basis as well. On the upside, the biggest gains were in Customer Inventories and Backlog Orders.
Both Production and New Orders declined this month, posting their fourth straight month of declines. The last time both components were down m/m for at least four straight months was in the period ending May 2011. Both indices remain at levels indicative of healthy growth, but they have also shown a meaningful downshift from multi-year highs.
Two indices that traded higher this month were Backlog Orders and Prices Paid. Backlog Orders hit its highest level since May 2004, while Prices Paid hit the highest level since April 2011. One surefire way to alleviate order backlogs is through higher prices, so that should support continued strength in the Prices Paid component.
Finally, we wanted to take a quick look at the commentary section of this month’s report, and reading through it, the tone of the commentary remains positive, but one theme that runs through it is building upside price pressures. Whether it’s terms like tightening supply, longer lead times, tariffs, or shortages, one thing these factors typically always lead to is higher prices.