Production, ordering down for second month

Don Hogsett, May 12, 2003

With production and orders both declining, the nation's manufacturing sector slowed for a second straight month in April, even as the overall U.S. economy grew for the 18th consecutive month, said a key economic indicator compiled by the nation's purchasing managers.

Manufacturers may be feeling better about the swift conclusion to the war with Iraq, but now there is growing concerned about slowing demand, and the monthly Purchasing Managers Index declined by 0.8 percentage points to 45.4 percent. Over the past five months, the index has dropped by 9.8 percentage points, from a reading of 55.2 in December.

Any reading over 50 indicates growth in the manufacturing sector, while anything beneath points to a decline in activity.

Norbert Ore, chairman of the Institute for Supply Management's Business Survey Committee, said, "The sector continued the lackluster performance that was evident in March, as new orders and production remained weak."

The good news, said Ore, is that the prices manufacturers pay for raw materials and other supplies "appears to have peaked in March, with April showing a significant softening in pricing pressures." Indeed, the Prices Index fell 6.5 percentage points to a reading of 63.5.

But if prices were looking good, production and new orders both remained weak, putting a damper on the sector. The New Orders Index fell by 1.0 percentage points to 45.2, down from 46.2 in March. The Production Index improved by 0.7 percentage points, but at a reading of 47.0 percent pointed to overall slower activity for a second straight month.

"Apprehension by supply managers about the impact of war appears to be diminished as the war resulted in few, if any, consequences to supply chains," said Ore. "They have now turned their concerns toward soft demand as manufacturing lacks drivers at this time. Supply managers will look to consumer confidence and business confidence as major influences for the second half of the year."

April snapshot
Manufacturing benchmarks
Month-over-month percentage-point change

Source: Institute for Supply Management
Purchasing Managers' Index -0.8%
New Orders -1.0
Production +0.7
Employment -0.7
Inventories +0.4
Customers' Inventories +2.5
Prices Manufacturers Pay -6.5
Order Backlogs +6.0
Export Orders -0.9
Imports +2.0

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