U.S. Manufacturing Expanded Less Than Forecast in April

(Bloomberg) -- America's factories expanded less than forecast in April as measures of orders and employment pulled back, Institute for Supply Management data showed on Monday.

Key Points

• ISM's index eased to 54.8 (forecast called for 56.5) from March's 57.2; readings above 50 indicate expansion
• Measure of orders dropped to 57.5 in April from 64.5
• Prices-paid index declined to 68.5 from 70.5
• Factory employment gauge retreated to 52 from 58.9 the prior month

Big Picture

Even with the retreat last month, the gauge remains well above the 51.5 average for all of 2016 and indicates healthy optimism among factory managers. The data show manufacturing is settling into a more sustained pace of growth after expanding in February by the most since mid-2014.

The decline also brings the factory diffusion index back toward levels that are more in line with so-called “hard data,” including industrial production and manufacturer orders and shipments. The Federal Reserve's latest production report showed factory output dropped 0.4 percent in March on weakness in the auto sector.

While the ISM's April measures of new orders and factory employment cooled from a month earlier, the report showed overseas markets are doing better. The group's index of export orders climbed in April to the highest level since November 2013. What's more, a gauge of customer inventories dropped to the lowest level since July 2015, a sign bookings and production will remain strong.

From a policy perspective, the Trump administration's recent release of a tax-cut plan may provide a glimpse into eventual legislation, giving businesses a bit more clarity for future investments and hiring.

Economist Takeaways

“We're off to a solid start. Each month of 2017 is higher so far than any month in 2016,” Bradley Holcomb, chairman of the ISM survey committee, said on a conference call with reporters. “The promise of tax reductions is very positive to business and we'll see more precisely which one they think is more important than the other as we go forward.”

Other Details

• 16 of 18 manufacturing industries reported growth, led by electrical equipment, appliances and textiles; apparel was only sector that contracted
• ISM's production gauge rose to 58.6 from 57.6
• Exports measure rose to 59.5 in April from 59
• Index of customer inventories fell to 45.5 from 47
• Gauge of supplier deliveries fell to 55.1 from 55.9
• Measure of order backlogs eased to 57 from a three-year high of 57.5

--With assistance from Kristy Scheuble

To contact the reporter on this story: Patricia Laya in Washington at playa2@bloomberg.net.

To contact the editors responsible for this story: Scott Lanman at slanman@bloomberg.net, Vince Golle, Randall Woods