ISM Disappoints, Led by Decline in Employment

In addition to construction estimates missing by a mile today, ISM also disappointed, albeit not by much.

The Bloomberg Consensus estimate for ISM was 52.0 but the report was a slightly weaker 51.5. It's the details that are interesting.

There's a new unwanted wrinkle in the ISM report and that's weakness in employment, holding down the headline index to 51.5 in April, unchanged from March. Employment has been holding strong in other reports -- but not in the ISM report where the index is down nearly 2 points to a sub-50 level of 48.3 to indicate month-to-month contraction. This is the first time this reading is in contraction since May 2013 and it's the lowest reading since all the way back in September 2009.

Other indications, however, are positive. New orders actually rose in the month, up 1.7 points to 53.5, and export orders are above 50 for the first time this year, at 51.5 for a 4.0 point gain. Production, at 56.0, is especially strong as are import orders at 54.0 for a 1.5 point gain. Prices, as in other reports, remain in contraction, little changed at 40.5.

And there's solid breadth in the report with 15 of 18 industries showing composite growth in the month with strength in the auto industry specifically cited. This report is mixed though the decline in employment won't be raising expectations for next week's employment report for April.

Note on Diffusion Indices

I commented on employment in Richmond Fed Manufacturing Index Negative Second Month.

It's important to note that a single firm hiring one person will counterbalance another firm firing 50. It's entirely possible employment is not as strong as it looks (not that 7 is a particularly strong number in the first place). 

Some of these subcomponents are mostly noise. The overall trend of all the reports in general is not noise. The baseline for zero growth in the ISM is 50, for the regional Fed reports it is 0. 

ISM Details

Let's investigate all the details of today's report straight from the Institute for Supply Management Manufacturing ISM® Report On Business® released this morning.

Index	Apr	Mar	PP Change	Direction	Rate of Change	Trend in Months
PMI®	51.5	5.1.5	0	Growing	Same	28
New Orders	53.5	51.8	1.7	Growing	Faster	29
Production	56.0	53.8	2.2	Growing	Faster	32
Employment	48.3	50	-1.7	Contracting	From Unchanged	19
Supplier Deliveries	50.1	50.5	-0.4	Slowing	Slower	23
Inventories	49.5	51.5	-2.0	Contracting	From Growing	1
Customers' Inventories	44.0	45.5	-1.5	Too Low	Faster	5
Prices	40.5	39.0	1.5	Decreasing	Slower	6
Backlog of Orders	49.5	49.5	0	Contracting	Same	2
Exports	51.5	47.5	4.0	Growing	From Contracting	1
Imports	54.0	52.6	1.5	Growing	Faster	27

All in all the report was about as expected. The details conflict with Richmond Fed and Dallas Fed. The former above. For the latter see 6th Straight Negative New Orders Reading for Dallas Fed Manufacturing Survey.

As with the Richmond Fed, the Dallas Fed reported a slight increase in employment. Many of the individual numbers are likely noise.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com