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First Cut: ISM Manufacturing Index lowest in 11 years in April; signals recession for broader economy

The ISM Manufacturing Index fell to 41.5 in April after 49.1 in March and was the lowest since late in the Great Recession. The reading crossed the threshold of signaling recession (42.8 according to the ISM) and is now consistent with an overall downturn, not just a sectoral one. The ISM report said the index had “a strongly negative trajectory.” Survey respondents put the blame squarely on the COVID-19 pandemic and the measures taken to combat its spread, and on weakness in energy markets.

Lack of new orders and extended shutdowns in factories will keep activity low in the next month at least.

The index for new orders fell 15.1 points to 27.1 in April, down for a third month in a row and accelerating. Unless it is essential goods like food and medical supplies, activity has largely evaporated. Order backlogs continued to contract at 37.8 in April after 45.9 in March. With nothing in the pipeline, there is no support for production where the index fell 20.2 points to 27.5 after 47.7. New export orders are also absent with that index at 35.3 after 46.6. The imports index was not much changed at 42.7 after 42.1 as supply chains remained stretched.

The index for supplier deliveries rose to 76.0 in April after 65.0 in March. With low inventories and little being produced, and delays in transportation, it is simply taking longer to get goods along the supply chain. The index for inventories rose to 49.7 in April after 46.9 in March as some goods accumulated in the absence of activity. However, earlier months in which businesses were keeping stocks lean mean that this has not risen as much as might otherwise be the case during the downturn.

The index for prices paid dipped 2.1 points to 35.3 in April after 37.4 in March. Energy prices are continuing to drag down input costs, although there is some offset from upward pressure on goods like disinfectants and soaps, and personal protective equipment, and precious metals.

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