TEMPE, Ariz. — Economic activity in the manufacturing sector contracted in April for the second month in a row, following a two-month expansion preceded by 26 straight months of contraction, say the nation's supply executives in the latest Manufacturing ISM® Report On Business.
The report was issued Thursday by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management Manufacturing Business Survey Committee:
"The Manufacturing PMI registered 48.7 percent in April, 0.3 percentage point lower compared to the 49 percent recorded in March. The overall economy continued in expansion for the 60th month after one month of contraction in April 2020. (A Manufacturing PMI above 42.3 percent, over a period of time, generally indicates an expansion of the overall economy.) The New Orders Index contracted for the third month in a row following a three-month period of expansion; the figure of 47.2 percent is 2 percentage points higher than the 45.2 percent recorded in March. The April reading of the Production Index (44 percent) is 4.3 percentage points lower than March's figure of 48.3 percent. The index returned to contraction last month after two months of expansion preceded by eight months of contraction. The Prices Index remained in expansion (or 'increasing') territory, registering 69.8 percent, up 0.4 percentage point compared to the reading of 69.4 percent in March. The Backlog of Orders Index registered 43.7 percent, down 0.8 percentage point compared to the 44.5 percent recorded in March. The Employment Index registered 46.5 percent, up 1.8 percentage points from March's figure of 44.7 percent.
"The Supplier Deliveries Index indicated a continued slowing of deliveries, registering 55.2 percent, 1.7 percentage points higher than the 53.5 percent recorded in March. (Supplier Deliveries is the only ISM® Report On Business index that is inversed; a reading of above 50 percent indicates slower deliveries, which is typical as the economy improves and customer demand increases.) The Inventories Index registered 50.8 percent, down 2.6 percentage points compared to March's reading of 53.4 percent. The index indicated expansion for a second consecutive month after six months of contraction.
"The New Export Orders Index reading of 43.1 percent is 6.5 percentage points lower than the reading of 49.6 percent registered in March. The Imports Index dropped into contraction in April, registering 47.1 percent, 3 percentage points lower than March's reading of 50.1 percent.
"In April, U.S. manufacturing activity slipped marginally further into contraction after expanding only marginally in February. Demand and output weakened while input strengthened further, conditions that are not considered positive for economic growth. Indications that demand weakened include the (1) New Orders Index continuing in contraction territory, (2) New Export Orders Index dropping sharply further into contraction, (3) Backlog of Orders Index contracting at a faster rate and (4) Customers' Inventories Index remaining in 'too low' territory. Output (measured by the Production and Employment indexes) also weakened. Factory output (production) contracted further in April, indicating that panelists' companies are continuing to revise production plans downward in the face of economic headwinds. The Employment Index ticked up but remained in contraction, as panelists' companies continued to release workers. Companies generally opted for layoffs because they are quicker to implement than attrition. Inputs are defined as supplier deliveries, inventories, prices and imports. Except for Imports, the other indexes indicated expansion. Inventory growth is not a positive sign when demand is moving in the opposite direction; the recent expansion is considered a temporary move to avoid tariffs, and levels will decline when such trade issues are resolved. Supplier delivery performance reflects this pull-forward activity and delays in clearing goods through ports of entry.
"Demand and production retreated and de-staffing continued, as panelists' companies responded to an unknown economic environment. Prices growth accelerated slightly due to tariffs, causing new order placement backlogs, supplier delivery slowdowns and manufacturing inventory growth. Forty-one percent of manufacturing gross domestic product (GDP) contracted in April, down from 46 percent in March. The share of manufacturing sector GDP registering a composite PMI® calculation at or below 45 percent (a good barometer of overall manufacturing weakness) was 18 percent in April, an 11-percentage point increase compared to the 7 percent reported in March. Of the six largest manufacturing industries, four (Petroleum & Coal Products; Computer & Electronic Products; Machinery; and Chemical Products) expanded in April, one more as compared to March."
The 11 manufacturing industries reporting growth in April — listed in order — are: Apparel, Leather & Allied Products; Petroleum & Coal Products; Plastics & Rubber Products; Electrical Equipment, Appliances & Components; Textile Mills; Computer & Electronic Products; Nonmetallic Mineral Products; Miscellaneous Manufacturing; Machinery; Chemical Products; and Primary Metals. The six industries reporting contraction in April, in order, are: Wood Products; Furniture & Related Products; Paper Products; Food, Beverage & Tobacco Products; Transportation Equipment; and Fabricated Metal Products.
WHAT RESPONDENTS ARE SAYING
"Uncertainty over tariffs is providing a big challenge from both Tier-1 suppliers we will have to pay tariffs on directly and Tier-2 suppliers that will try to pass tariffs through to us in the form of price increases and tariff surcharges." [Chemical Products]
"Tariffs impacting operations — specifically, delayed border crossings and duties calculations that are complex and not completely understood. As a result, we are potentially overpaying duties. Unsure of potential drawbacks. Implementation of tariffs and their application is sudden and abrupt. The business is taking countermeasures." [Transportation Equipment]
"Business climate is apprehensive, and with tariff costs implemented, all inbound Chinese shipments are on hold. It is not feasible for our business or customers to sustain the pricing required to provide an acceptable margin." [Computer & Electronic Products]
"The most important topic is tariffs. Risks include margin erosion due to rising operational costs and freight delays disrupting delivery timelines. Supplier relationships are strained by pain-share negotiations, and competitors are gaining share by importing from lower-tariff regions." [Food, Beverage & Tobacco Products]
"Tariff whiplash is causing us major issues with customers. The two issues we are seeing: (1) customers are holding back orders to understand what is happening with tariffs on their products or (2) they are forcing us to accept the tariffs, which causes us to 'no quote' the job as we cannot take on that type of risk for an order." [Machinery]
"There is a lot of concern about the inflationary impacts from tariffs in our industry. Domestic producers are charging more for everything because they can." [Fabricated Metal Products]
"Tariff trade wars are incredibly volatile, quickly changing, and disrupting a ton of our current work. We are 90 percent sourced out of China, and the cost models keep changing every week. We are flying to visit suppliers in a few weeks to negotiate current terms and pricing, as well as develop more long-term, strategic plans to reduce risk in the region." [Apparel, Leather & Allied Products]
"Demand is slightly lower than plan, but it has been steady amid tariff concerns. Significant time has been spent quantifying the impact of changing tariff rates. Our costs will increase, and we are discussing how to share that impact across suppliers and customers." [Electrical Equipment, Appliances & Components]
"The recently imposed 145-percent tariff rate on Chinese imports is significantly affecting our 2025 profitability. Due to the complexity of our parts and the lack of alternate sources, we are unable to find any alternate suppliers — especially at a reasonable cost — to our current Chinese sources. Incoming orders have slowed due to market volatility and uncertainty." [Miscellaneous Manufacturing]
"Strategic procurement and the supply chain are paralyzed in a world that changes daily due to tariffs." [Nonmetallic Mineral Products]
Institute for Supply Management
