US Manufacturing Slows Further in April

U.S. manufacturing activity slowed for a second straight month in April, but supply bottlenecks appeared to be easing, with the pace of increase in prices for inputs and the backlog of unfinished work at factories moderating.

The Institute for Supply Management (ISM) said on Monday that its index of national factory activity fell to a reading of 55.4 last month from 57.1 in March.

A reading above 50 indicates expansion in manufacturing, which accounts for 12% of the U.S. economy. Economists polled by Reuters had forecast the index rising to 57.6.

Spending is also rotating back to services like travel, dining out and recreation, contributing to the cooling in manufacturing. Government data on Friday showed consumer spending on services increasing by the most in eight months in March, while outlays on long-lasting manufactured goods dropped for a second consecutive month.

The ISM survey's forward-looking new orders sub-index dipped to 53.5 from 53.8 in March. Goods spending surged as the COVID-19 restricted movement and with customer inventories running extremely lean for more than 60 months, manufacturing is in no danger of stalling.

The survey's measure of supplier deliveries rose to 67.2 from 65.4 in March. A reading above 50% indicates slower deliveries to factories. Tight supply chains have been exacerbated by Russia's war against Ukraine, which has boosted prices of oil and other commodities. New coronavirus-related lockdowns in China are also not helping.

But there are signs of some improvement in supply. The survey's gauge of order backlogs dropped to a reading of 56 from 60.0 in March. It was the second straight monthly decline.

With supply strains starting to resolve, inflation at the factory gate could be peaking. A measure of prices paid by manufacturers dropped to a reading of 84.6 from 87.1 in March.

The Federal Reserve is expected to hike interest rates by half-a-percentage point on Wednesday. The Fed raised its policy interest rate by 25 basis points in March, and is soon likely to start trimming its asset holdings.

But there were fewer workers on factory floors last month. The survey's measure of factory employment fell to a reading of 50.9 from 56.3 in March. That likely reflected difficulties finding workers. There were a near record 11.3 million job openings at the end of February.