Manufacturing Stretches Gain

Energy Prices a Yellow Flag

James Mammarella, May 7, 2007

The manufacturing sector grew at a faster rate in April, in an ongoing recovery from the fourth-quarter 2006 drop — although caution is due, in light of raw material price increases, the nation's purchasing managers reported.

In a monthly update on the strength of the manufacturing sector, a key driver of the U.S. economy, the Institute for Supply Management (ISM) said its Purchasing Managers' Index (PMI) continued the positive trend that started after a fourth quarter that saw the Index drop beneath the threshold level of 50, the dividing line between expansion and contraction.

April saw the growth rate accelerate, and the PMI reach 54.7%, a reading that is the highest since an identical level was reported for May 2006. "New Orders and Production improved significantly, as did Employment," said Norbert Ore, chairman of the ISM's Manufacturing Business Survey Committee.

Ore added, "Manufacturers are now in their ninth month of inventory reduction, so supply chains are generally in balance."

"On the negative side," he said, "prices continue to rise at a rapid rate with metals and energy being the areas of greatest concern to buyers."

Indeed, the Prices index rose by 7.5 percentage points in April — the fourth straight monthly hike — and with a downward trend in both Inventories (down 1.2 points) and Customers' Inventories (down 1.0 points), the indication is that it could cost more to keep up with the growing Backlog of Orders (swinging up 7.5 points after a recent downturn).

April Snapshot
Manufacturing benchmarksMonth-over-month percentage change

Source: Institute for Supply Management
Purchasing Managers' Index 3.8
New Orders 6.9
Production 4.3
Employment 4.4
Supplier Deliveries -1.1
Inventories -1.2
Customers' Inventories -1.0
Prices Manufacturers Pay 7.5
Order Backlogs 7.5
Export Orders 1.5
Imports 0.5

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