Manufacturing Reports Show Some Good News

The manufacturing sector has started out the second quarter completely flat, based at least on the April PMI which fell 7 tenths to 50.8. New orders did rise modestly in the month but that's the only good news in the report. Export orders, contracting at the fastest pace in more than a year, are not showing any lift yet from the lower dollar. And higher oil prices are not helping capital spending in the energy sector which remains a major negative for the sample. Output is flat, backlog orders are in contraction for a third straight month, and employment has completely stalled. And manufacturers continue to work down inventories as much as possible. Prices for raw materials, reflecting higher costs for oil-related products, did rise but not selling prices which are decreasing further.

Recent History Of This Indicator:
The manufacturing PMI has not been among the advanced indicators signaling strength for the sector. The flash for April came in at a very soft 50.8 with only a small 2 tenth rise to 51.0 expected for the final reading. Growth in output and employment has been slowing in this report as has growth in new orders which, unlike a few reports, has yet to get a boost from dollar-related strength in exports. 

...meanwhile...

April's 50.8 for the ISM manufacturing index may be moderately below expectations for 51.5 but details in the report are positive. New orders did slow by 2.5 points but the level at 55.8 still points to a very solid rate of growth. New export orders are also positive, unchanged at 52.5 which isn't very dramatically above breakeven 50 but is still very solid for this reading and the best since December 2014. Production did slow 9 tenths but at 54.2 is also more than respectable. Backlog orders are still rising, though just barely at 50.5, but this along with March's 51.0 are the best two months for this reading also since December 2014.

Now the weaknesses in the report, led by employment which did rise 1.1 points but is still below 50 at 49.2. Supplier deliveries, down 1.1 points at 49.1, pulled the composite index lower in the month and likely reflect lack of inventories at suppliers. And ISM's sample continues to be very defensive regarding inventories with both raw materials and finished goods in accelerating contraction. Prices paid, at 59.0 for a sharp 7.5 point gain, reflect higher oil-related costs. There are no indications in this report on selling prices but other readings, including from this morning's April PMI, have been negative.

But there's reasons for optimism in this report centered entirely where it must be -- in orders.

Recent History Of This Indicator:
Despite a big surge for new orders in the March report, expectations look for little change in the ISM manufacturing index which is expected to edge 3 tenths lower in April to 51.5. But new orders jumped 7 points in March to 58.3 which will provide strength to April's readings on production and perhaps employment. Export orders were also a plus in March which if repeated, would represent an early positive signal from the lower dollar.