PMI® at 41.5%; April 2020 Manufacturing ISM® Report On Business®

Production, New Orders, and Employment Contracting; Supplier Deliveries Slowing at Faster Rate; Backlog Contracting; Raw Materials Inventories Contracting; Customers' Inventories Too Low; Prices Decreasing; Exports and Imports Contracting

TEMPE, Ariz., May 1, 2020 /PRNewswire/ -- Economic activity in the manufacturing sector contracted in April, and the overall economy contracted after 131 consecutive months of expansion, say the nation's supply executives in the latest Manufacturing ISM^® Report On Business^®.

The report was issued today by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management^® (ISM^®) Manufacturing Business Survey Committee: "The April PMI^® registered 41.5 percent, down 7.6 percentage points from the March reading of 49.1 percent. The New Orders Index registered 27.1 percent, a decrease of 15.1 percentage points from the March reading of 42.2 percent. The Production Index registered 27.5 percent, down 20.2 percentage points compared to the March reading of 47.7 percent. The Backlog of Orders Index registered 37.8 percent, a decrease of 8.1 percentage points compared to the March reading of 45.9 percent. The Employment Index registered 27.5 percent, a decrease of 16.3 percentage points from the March reading of 43.8 percent. The Supplier Deliveries Index registered 76 percent, up 11 percentage points from the March reading of 65 percent, limiting the decrease in the composite PMI^®.

"The Inventories Index registered 49.7 percent; 2.8 percentage points higher than the March reading of 46.9 percent. The Prices Index registered 35.3 percent, down 2.1 percentage points compared to the March reading of 37.4 percent. The New Export Orders Index registered 35.3 percent, a decrease of 11.3 percentage points compared to the March reading of 46.6 percent. The Imports Index registered 42.7 percent, a 0.6-percentage point increase from the March reading of 42.1 percent.

"Comments from the panel were strongly negative (three negative comments for every one positive comment) regarding the near-term outlook, with sentiment clearly impacted by the coronavirus (COVID-19) pandemic and continuing energy market recession. The PMI^® indicates a level of manufacturing-sector contraction not seen since April 2009, with a strongly negative trajectory. Demand contracted heavily, with the (1) New Orders Index contracting at a very strong level, again pushed by new export order contraction, (2) Customers' Inventories Index approaching a level that is considered a negative for future production, and (3) Backlog of Orders Index strongly contracting, in spite of a lack of production during the period. Consumption (measured by the Production and Employment indexes) contributed negatively (a combined 36.5-percentage point decrease) to the PMI^® calculation, with activity dramatically contracting due to plant closures and lack of demand. Inputs — expressed as supplier deliveries, inventories and imports — strengthened again due to supplier delivery issues that were partially offset by continuing imports sluggishness. The delivery issues were the result of disruptions in domestic and global supply chains, driven primarily by supplier plant shutdowns. Inventory contraction slowed due to throughput issues. Inputs contributed positively (a combined 13.8-percentage point increase) to the PMI^® calculation. (The Supplier Deliveries and Inventories indexes directly factor into the PMI^®; the Imports Index does not.) Prices continued to contract (and at a faster rate in April), supporting a negative outlook.

"The coronavirus pandemic and global energy market weakness continue to impact all manufacturing sectors for the second straight month. Among the six big industry sectors, Food, Beverage & Tobacco Products remains the strongest. Transportation Equipment and Fabricated Metal Products are the weakest of the big six sectors," says Fiore.

Of the 18 manufacturing industries, the two that reported growth in April are: Paper Products; and Food, Beverage & Tobacco Products. The 15 industries reporting contraction in April, in order, are: Printing & Related Support Activities; Furniture & Related Products; Transportation Equipment; Textile Mills; Fabricated Metal Products; Nonmetallic Mineral Products; Machinery; Plastics & Rubber Products; Electrical Equipment, Appliances & Components; Petroleum & Coal Products; Wood Products; Miscellaneous Manufacturing; Computer & Electronic Products; Primary Metals; and Chemical Products.

WHAT RESPONDENTS ARE SAYING

• "Thirty-percent decrease for April due to COVID-19 impact on both customers and suppliers." (Computer & Electronic Products)
• "Production stopped, other than to make hand sanitizer for those in need." (Chemical Products)
• "COVID-19 has created a wave of activities, including vendors closing, vendors focusing only on the medical industry, employees not coming to work, delayed shipments from overseas, [and] etcetera." (Transportation Equipment)
• "The food processing B2B space remains steady. We are weathering the storm. There is a fortunate increased need for packaged foods. Softening is showing through in some products that find their way into food service and lodging." (Food, Beverage & Tobacco Products)
• "Our refinery is losing money making gasoline due to the falling demand." (Petroleum & Coal Products)
• "We supply the construction industry in various ways, where the slowdown has been a bit slower than most industries. It is, however; beginning to impact our business, and we see more challenges on the horizon." (Fabricated Metal Products)
• "The company I work for manufactures personal protective equipment [PPE], specifically N95 masks, face shields, as well as selling protective clothing and hand protection. In the area of PPE, our backlog has spiked to numbers we have never seen. While no doubt some of the backorders will be canceled, many of the orders are longer term commitments from [the] U.S. government." (Apparel, Leather & Allied Products)
• "Our packaging business is starting to see signs of a slowdown in May after two strong months into COVID-19." (Paper Products)
• "COVID-19 has destroyed our market and our company. Without a full recovery very soon, and some assistance, I fear for our ability to continue operations." (Nonmetallic Mineral Products)
• "Dealing with the effects of coronavirus and having 65 percent of our operations down." (Furniture & Related Products)

Manufacturing ISM^® Report On Business^® data is seasonally adjusted for the New Orders, Production, Employment and Inventories indexes.
*Number of months moving in current direction.

COMMODITIES REPORTED UP/DOWN IN PRICE AND IN SHORT SUPPLY

Commodities Up in Price
Caustic Soda; Disinfectants & Soaps; Freight; Personal Protective Equipment (PPE); PPE — Gloves (2); PPE— Masks; and Precious Metals.

Commodities Down in Price
Aluminum (3); Copper (3); Corn; Crude Oil (3); Diesel Fuel (2); Distillates; Gasoline; Natural Gas (5); Scrap (3); Steel — Hot Rolled (3); Steel — Stainless; and Steel Products.

Commodities in Short Supply
Capacitors; Disinfectants & Soaps; Electrical Cable; Hand Sanitizer (2); Isopropyl Alcohol (2); N95 Masks; PPE — Gloves (2); PPE — Masks (2); and Resistors.

Note: The number of consecutive months the commodity is listed is indicated after each item.

APRIL 2020 MANUFACTURING INDEX SUMMARIES

PMI^®
Manufacturing contracted in April, as the PMI^® registered 41.5 percent, 7.6 percentage points lower than the March reading of 49.1 percent. "The PMI^® contracted strongly in April after dropping below 50 percent in March. The PMI^® recorded its lowest level since April 2009, when it registered 39.9 percent. The 7.6-percentage point decrease in the PMI^® is the largest one-month decline since a 9-percentage point decrease in October 2008. Among the big six industries, only Food, Beverage & Tobacco Products expanded. For the second month in a row, all of the PMI^® subindexes show a strong negative impact due to the ongoing coronavirus pandemic," says Fiore. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

A PMI^® above 42.8 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the April PMI^® indicates a contraction of the overall economy after 131 consecutive months of growth. The manufacturing sector contracted for the second consecutive month. "The past relationship between the PMI^® and the overall economy indicates that the PMI^® for April (41.5 percent) corresponds to a 0.4-percent decrease in real gross domestic product (GDP) on an annualized basis. From a pure demand and material-conversion standpoint, discounting the oversized influence in the ability to obtain supply, the economic contraction in April was likely sharper than the traditional PMI^® calculation indicates," says Fiore.

THE LAST 12 MONTHS

New Orders
ISM^®'s New Orders Index registered 27.1 percent in April, a decrease of 15.1 percentage points compared to the 42.2 percent reported for March. This indicates that new orders contracted for the third consecutive month. This is the index's lowest reading since December 2008, when it registered 25.9 percent. The 15.1-percentage point decrease in the New Orders Index between March and April is the largest one-month decline since April 1951 (18.7 percentage points). "Of the top six industry sectors, Food, Beverage & Tobacco Products expanded strongly, while Chemical Products contracted and Transportation Equipment; Petroleum & Coal Products; Fabricated Metal Products; and Computer & Electronic Products contracted strongly," says Fiore. A New Orders Index above 52.5 percent, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders (in constant 2000 dollars).

Of the 18 manufacturing industries, the two that reported growth in new orders in April are: Food, Beverage & Tobacco Products; and Paper Products. The 15 industries reporting a decline in new orders in April — in the following order — are: Textile Mills; Printing & Related Support Activities; Nonmetallic Mineral Products; Transportation Equipment; Petroleum & Coal Products; Furniture & Related Products; Fabricated Metal Products; Machinery; Electrical Equipment, Appliances & Components; Plastics & Rubber Products; Miscellaneous Manufacturing; Computer & Electronic Products; Wood Products; Primary Metals; and Chemical Products.

Production
The Production Index registered 27.5 percent in April, the lowest figure since numeric ISM^® Report On Business^® index records began in January 1948. The index indicated a second straight month of contraction, and the 20.2-percentage point decrease from the March reading of 47.7 percent is the largest one-month decline since January 1984, when the index fell 20.7 percentage points. "Food, Beverage & Tobacco Products was the only top-six industry sector that expanded, with the others contracting strongly due to lack of new orders and labor available to convert material," says Fiore. An index above 51.7 percent, over time, is generally consistent with an increase in the Federal Reserve Board's Industrial Production figures.

The two industries reporting growth in production during the month of April are: Paper Products; and Food, Beverage & Tobacco Products. The 14 industries reporting a decrease in production in April — listed in order — are: Textile Mills; Printing & Related Support Activities; Furniture & Related Products; Transportation Equipment; Plastics & Rubber Products; Fabricated Metal Products; Machinery; Nonmetallic Mineral Products; Miscellaneous Manufacturing; Petroleum & Coal Products; Electrical Equipment, Appliances & Components; Computer & Electronic Products; Chemical Products; and Primary Metals.

Employment
ISM^®'s Employment Index registered 27.5 percent in April, 16.3 percentage points lower than the March reading of 43.8 percent. This is the index's lowest reading since June 1949 (27.2 percent) and largest one-month percentage-point decrease since numeric records began in January 1948. "This is the ninth month of employment contraction, and at a much faster rate compared to March. All six big industry sectors experienced employment contraction as a result of furloughs and layoffs due to a lack of new orders and/or social-distancing mandates," says Fiore. An Employment Index above 50.8 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

Of the 18 manufacturing industries, the only industry to report employment growth in April is Apparel, Leather & Allied Products. The 16 industries reporting a decrease in employment in April, in the following order, are: Printing & Related Support Activities; Furniture & Related Products; Transportation Equipment; Textile Mills; Machinery; Electrical Equipment, Appliances & Components; Fabricated Metal Products; Plastics & Rubber Products; Petroleum & Coal Products; Nonmetallic Mineral Products; Primary Metals; Miscellaneous Manufacturing; Wood Products; Computer & Electronic Products; Chemical Products; and Food, Beverage & Tobacco Products.

Supplier Deliveries^†
The delivery performance of suppliers to manufacturing organizations was slower in April, as the Supplier Deliveries Index registered 76 percent. This is 11 percentage points higher than the 65 percent reported in March. The index reached its highest level since April 1974, when it registered 82.1 percent. The 11-percentage point increase is the largest one-month jump since January 1976, when the Supplier Deliveries Index increased 12.8 percentage points. "Suppliers continue to struggle to deliver, at a much stronger rate compared to March. The COVID-19 pandemic was the primary cause of global and domestic supply chain disruptions, with suppliers impacted by plant shutdowns, transportation challenges and the continuing difficulty in importing parts and components," says Fiore. A reading below 50 percent indicates faster deliveries, while a reading above 50 percent indicates slower deliveries.

The 17 industries reporting slower supplier deliveries in April — listed in order — are: Printing & Related Support Activities; Petroleum & Coal Products; Textile Mills; Miscellaneous Manufacturing; Computer & Electronic Products; Food, Beverage & Tobacco Products; Transportation Equipment; Electrical Equipment, Appliances & Components; Apparel, Leather & Allied Products; Furniture & Related Products; Machinery; Chemical Products; Plastics & Rubber Products; Paper Products; Nonmetallic Mineral Products; Fabricated Metal Products; and Primary Metals. The only industry reporting faster supplier deliveries in April is Wood Products.

Inventories
The Inventories Index registered 49.7 percent in April, 2.8 percentage points higher than the 46.9 percent reported for March. "The index contracted for an 11th straight month, but at a slower rate. Inventory contraction slowed as expected due to supply chain disruptions and lack of labor to convert material," says Fiore. An Inventories Index greater than 44.3 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).

The 10 industries reporting higher inventories in April, in order, are: Wood Products; Paper Products; Textile Mills; Furniture & Related Products; Primary Metals; Petroleum & Coal Products; Fabricated Metal Products; Electrical Equipment, Appliances & Components; Machinery; and Transportation Equipment. The six industries reporting a decrease in inventories in April — listed in order — are: Apparel, Leather & Allied Products; Printing & Related Support Activities; Computer & Electronic Products; Food, Beverage & Tobacco Products; Plastics & Rubber Products; and Chemical Products.

Customers' Inventories^†
ISM^®'s Customers' Inventories Index registered 48.8 percent in April, 5.4 percentage points higher than the 43.4 percent reported for March, indicating that customers' inventory levels were considered too low. "Customers' inventories are too low for the 43rd consecutive month; however, the index took another step toward 'about right' territory in April. These inventories no longer remain at a level that will support future production output," says Fiore.

Of the 18 industries, the three industries reporting higher customers' inventories in April are: Nonmetallic Mineral Products; Transportation Equipment; and Textile Mills. The nine industries reporting customers' inventories as too low during April — listed in order — are: Wood Products; Printing & Related Support Activities; Apparel, Leather & Allied Products; Fabricated Metal Products; Furniture & Related Products; Chemical Products; Paper Products; Primary Metals; and Computer & Electronic Products. Six industries reported no change in customers' inventories in April.

Prices^†
The ISM^® Prices Index registered 35.3 percent in April, 2.1 percentage points lower than the March reading of 37.4 percent, indicating raw materials prices decreased for the third consecutive month, at a faster rate. "Prices contracted in April, driven primarily by scrap steel, other steels, aluminum, copper, corn, distillates and other energy sources. Prices contracted to their lowest level since January 2016, when the index registered 33.9 percent," says Fiore. A Prices Index above 52.5 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Producer Price Index for Intermediate Materials.

The three industries reporting paying increased prices for raw materials in April are: Furniture & Related Products; Textile Mills; and Food, Beverage & Tobacco Products. The 12 industries reporting a decrease in prices for raw materials in April — listed in order — are: Petroleum & Coal Products; Wood Products; Plastics & Rubber Products; Fabricated Metal Products; Apparel, Leather & Allied Products; Electrical Equipment, Appliances & Components; Nonmetallic Mineral Products; Machinery; Chemical Products; Primary Metals; Transportation Equipment; and Computer & Electronic Products.

Backlog of Orders^†
ISM^®'s Backlog of Orders Index registered 37.8 percent in April, an 8.1-percentage point decrease compared to the 45.9 percent reported in March, indicating order backlogs contracted for the second consecutive month. This is the index's lowest reading since March 2009 (37.6 percent). The 8.1-percentage point decrease in the Backlog of Orders Index is the largest one-month decline since May 2011, when it dropped 9.1 percentage points. "Despite weak production output, backlogs heavily contracted as a result of weak levels of new orders and new export orders. Two of the six big industry sectors' backlogs expanded during the period, most notably Computer & Electronic Products. Panelists' comments indicate supply chain disruptions are the primary cause of backlog growth," says Fiore.

The three industries reporting growth in order backlogs in April are: Food, Beverage & Tobacco Products; Paper Products; and Computer & Electronic Products. In April, 13 industries reported lower backlogs, in the following order: Printing & Related Support Activities; Fabricated Metal Products; Nonmetallic Mineral Products; Transportation Equipment; Furniture & Related Products; Petroleum & Coal Products; Wood Products; Textile Mills; Miscellaneous Manufacturing; Plastics & Rubber Products; Machinery; Electrical Equipment, Appliances & Components; and Chemical Products.

New Export Orders^†
ISM^®'s New Export Orders Index registered 35.3 percent in April, a decrease of 11.3 percentage points compared to the March reading of 46.6 percent. This is the index's lowest reading since December 2008 (34.7 percent) and the largest one-month decline since a 12.9-percentage point decrease in October 2008. "The New Export Orders Index contracted heavily, with none of the six big industry sectors expanding. This indicates a clear slowdown in global demand," says Fiore.

The only industry reporting growth in new export orders in April is Apparel, Leather & Allied Products. The 14 industries reporting a decrease in new export orders in April, in the following order, are: Printing & Related Support Activities; Transportation Equipment; Miscellaneous Manufacturing; Textile Mills; Plastics & Rubber Products; Furniture & Related Products; Fabricated Metal Products; Nonmetallic Mineral Products; Machinery; Food, Beverage & Tobacco Products; Primary Metals; Computer & Electronic Products; Electrical Equipment, Appliances & Components; and Chemical Products.

Imports^†
ISM^®'s Imports Index registered 42.7 percent in April, an increase of 0.6 percentage point compared to the 42.1 percent reported for March. "For the third consecutive month, imports were in contraction territory, with the index at levels not seen since May 2009, when it registered 38.5 percent. As was the case with supplier deliveries-related comments, respondents indicated the continuing impact from COVID-19 in global supply markets as the primary cause of reduced import activity," says Fiore.

The five industries reporting growth in imports in April are: Apparel, Leather & Allied Products; Petroleum & Coal Products; Textile Mills; Nonmetallic Mineral Products; and Food, Beverage & Tobacco Products. The 11 industries reporting a decrease in imports in April — in the following order — are: Plastics & Rubber Products; Transportation Equipment; Printing & Related Support Activities; Miscellaneous Manufacturing; Computer & Electronic Products; Electrical Equipment, Appliances & Components; Paper Products; Furniture & Related Products; Fabricated Metal Products; Primary Metals; and Machinery.