U.S. ISM Manufacturing Index (April 2023)
Leslie Preston, Managing Director & Senior Economist | 416-944-5307
Date Published: May 1, 2023
Manufacturing Sector Downturn Continued in April According to ISM
- The ISM Manufacturing Index gained a sliver of ground in April, up to 47.1 from 46.3 in March. That is slightly better than market expectations, but marks six months of contractionary readings for the factory sector.
- Demand eased again, with new orders contracting, albeit at a slower rate (45.7 in April vs. 44.3 in March). New export orders remained just in contractionary territory at 49.8 percent, customer inventories entered the low end of "too high" – a negative for future production – and the backlog of orders continued to ease (43.1 in April versus 43.9 in March).
- Output/consumption measures were in positive territory, with the production index up to 48.9 from 47.8 in March and employment moving back into expansion territory at 50.2 from 46.9 in March.
- The input side is described as being accommodative to future growth. Supplier deliveries are speeding up, as evidenced by the sub-index falling to 44.6 from 44.8 in March and inventories fell to 46.3 from 47.5 in March. However, the prices index moved back into expansion territory at 53.2, from 49.2 in March.
- Despite the improvement in the headline index, fewer industries are reporting growth. Only five of 18 manufacturing industries reported growth in April. And of the six largest manufacturing industries, only two recorded growth in April – petroleum and coal products and transportation equipment.
- While sentiment in the factory sector improved in April, the index remained below the 50-level consistent with expansion. Manufacturing remains in a cyclical slowdown as the impact of higher borrowing costs weighs on activity and demand for goods has downshifted from its pandemic heights.
- Demand is likely to remain soft for a while yet, as consumer demand is expected to continue to slow through 2023. Against a backdrop of elevated recession concerns, it is worth remembering that manufacturing is more cyclical than the economy as a whole. It has seen numerous downturns outside of recessions over the past 50 years. Also, the index typically gets to readings in the low 40s during recessions. One silver lining is that the ongoing improvement on supply chains may help relieve the pent-up demand in the automotive sector over the coming year.
This report is provided by TD Economics. It is for informational and educational purposes only as of the date of writing, and may not be appropriate for other purposes. The views and opinions expressed may change at any time based on market or other conditions and may not come to pass. This material is not intended to be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice. The report does not provide material information about the business and affairs of TD Bank Group and the members of TD Economics are not spokespersons for TD Bank Group with respect to its business and affairs. The information contained in this report has been drawn from sources believed to be reliable, but is not guaranteed to be accurate or complete. This report contains economic analysis and views, including about future economic and financial markets performance. These are based on certain assumptions and other factors, and are subject to inherent risks and uncertainties. The actual outcome may be materially different. The Toronto-Dominion Bank and its affiliates and related entities that comprise the TD Bank Group are not liable for any errors or omissions in the information, analysis or views contained in this report, or for any loss or damage suffered.