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The numbers: The ISM barometer of American factories fell 1.7 points to 55.4% in April as the industrial side of the economy grew at the slowest clip in 18 months, reflecting broad supply and labor shortages and intense inflationary pressures.
Economists polled by The Wall Street Journal forecast the index to rise to 57.8% from a one-and-a-half year low of 57.1% in March.
The report, compiled by the Institute for Supply Management, is seen as a mirror of the health of the U.S. economy. Any number above 50% signifies growth.
Yet even though the index has been very strong for most of the past two years and is historically high, it’s shown some weakening lately.
“Inflation is out of control,” one chemical-industry executive told ISM. “At some point, the economy must give way. It will be tough to have real growth with such pressure on costs.”
Big picture: Manufacturers still have plenty of demand for new cars, appliances, metal parts and other industrial goods.
Yet they are still struggling to obtain enough supplies on time and labor and material prices are rising due to the highest inflation in 40 years. Covid outbreaks in China and the war in Ukraine are adding to the strain.
The lockdowns in China are going to cause “some pretty significant problems,” said Timothy Fiore, chairman of the survey.
“ “Inflation is out of control.” ”
Key details:
- The index of new orders slipped 0.3 points to 53.5%. That’s the lowest level since the economy was shut down in May 2020 during the early stages of the pandemic.
- The production barometer dipped 0.9 points to 53.6% — an 18-month low.
- The employment gauge sank 5.4 points to 50.9%, matching an eight-month low.
- The prices index, a measure of inflation, dropped 2.5 points to a still-high 84.6%.
Fiore warned that lockdowns in China have exacerbated supply issues and could cause a chain reaction in the U.S., in which port congestion worsens again once China begins to send a flurry ships to American ports to unload.
“We’re kind of back to where we were in the fall last year,” he said.
Finding and retaining workers is still a big problem, he said. Factories are hungry for labor, but turnover rose in April as more workers quit.
More broadly, the survey suggests inflation is likely to remain sky-high for a while.
Looking ahead: “A resurgence of the Omicron variant in key manufacturing centers in China, and consequent lockdowns in these regions, threatens to significantly slow or reverse the modest improvements reported in supply chain conditions that companies have recently been reporting,” said Joshua Shapiro, chief ecoomist at MFR Inc.
Market reaction: The Dow Jones Industrial Average
DJIA,
and S&P 500
SPX,
rose in Monday trades. Stocks have been under pressure for the past few weeks and are well off last year’s record highs.
