Manufacturing PMI

U.S. manufacturing pulled off a three-year low in April as new orders improved slightly and employment rebounded, but activity remained depressed amid higher borrowing costs and tighter credit, which have raised the risk of a recession this year.

Manufacturing PMI rises to 47.1 in April.

ISM said 73% of manufacturing GDP contracting.

New orders improve moderately; prices paid pick up.

Despite the weakness in factory activity and demand for goods reported by the Institute for Supply Management (ISM) on Monday, there was a build-up of inflation pressures last month.

This supports expectations that the U.S. Federal Reserve will raise interest rates by another 25 basis points to a 5%-5.25% range on Wednesday before potentially pausing its fastest monetary policy tightening campaign since the 1980s.

"The economy will likely slide into recession later this year," said Jeffrey Roach, chief economist at LPL Financial in Charlotte, North Carolina.

"The persistent pricing pressure on manufacturers should abate in the coming months. Still, the Fed will likely hike rates this week and perhaps start telegraphing their likely decision to pause the rate-hiking campaign later this summer."

The ISM said its manufacturing PMI increased to 47.1 last month from 46.3 in March, which was the lowest reading since May 2020. Economists polled by Reuters had forecast 46.8.

It was the sixth straight month that the PMI remained below 50, which indicates contraction. And activity could remain subdued as the ISM noted that customers' inventory levels "are now at the low end of the 'too high' level," and "likely not conducive to future output growth."

Though a separate S&P Global survey showed manufacturing expanding for the first time in six months in April, factories continued to report hesitancy among customers to place orders because of higher prices and economic uncertainty.

The ISM says a PMI reading below 48.7% over a period of time generally indicates the economy is in recession.

The ISM said 73% of manufacturing gross domestic product was contracting, up from 70% in March. But it noted that fewer industries declined sharply.

"The proportion of manufacturing GDP with a composite PMI calculation at or below 45 percent - a good barometer of overall manufacturing weakness - was 12 percent in April, compared to 25 percent in March," said Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee.

Only two of the six biggest manufacturing industries, petroleum and coal products as well as transportation equipment, reported growth.

Source: Reuters