The report was issued today by Norbert J. Ore, CPSM, C.P.M., chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. "The decline in the manufacturing sector continues to moderate. After six consecutive months below the 40-percent mark, the PMI, driven by the New Orders Index at 47.2 percent, shows a significant improvement. While this is a big step forward, there is still a large gap that must be closed before manufacturing begins to grow once again. The Customers' Inventories Index indicates that channels are paring inventories to acceptable levels after reporting inventories as 'too high' for eight consecutive months. The prices manufacturers pay for their goods and services continue to decline; however, copper prices have bottomed and are now starting to rise. This is definitely a good start for the second quarter."
The real news here is the new orders index:
ISM's New Orders Index registered 47.2 percent in April, 6 percentage points higher than the 41.2 percent registered in March. This is the 17th consecutive month of contraction in the New Orders Index. A New Orders Index above 48.8 percent, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders (in constant 2000 dollars).
This is consistent with the GDP/inventory situation -- the contraction in inventories will lead to an increase in orders which will lead to an uptick in manufacturing. However -- before we get too excited, let's take note of a few things:
Industrial production has dropped pretty hard and
Is currently dropping at a rate not seen since the early 1970s. In addition
Capacity Utilization is at the lowest level in almost 40 years.
In other words, once we are back in positive territory on the ISM we have a lot of capacity to use up before we are back on a solid path.
