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The ISM manufacturing index is back in contraction after a one-month reprieve, but prices expand sharply. It’s a bad mix.

ISM chart and excerpts below by permission from the Institute for Supply Management® ISM®

The April 2024 Manufacturing ISM^® Report On Business^® looks dismal except for production.

The U.S. manufacturing sector dropped back into contraction after growing in March, the first time since September 2022 that the sector reported expansion. Although demand improvement slowed, output remains positive and inputs stayed accommodative. Demand softening was reflected by the (1) New Orders Index dropping back into contraction, offset by fewer comments regarding ‘softening,’ (2) New Export Orders Index indicating contraction after two months of expansion, offset by panelists’ more optimistic comments, (3) Backlog of Orders Index remaining in moderate contraction territory, dropping back slightly compared to March, and (4) Customers’ Inventories Index at the ‘just right’ level, neutral for future production. Output (measured by the Production and Employment indexes) moderated compared to March, with a combined 2.1-percentage point downward impact on the Manufacturing PMI^® calculation.

Panelists’ companies slightly increased their production levels month over month, and head-count reductions continued (but showed signs of easing) in April. Inputs — defined as supplier deliveries, inventories, prices and imports — continued to accommodate future demand growth. The Supplier Deliveries Index dropped marginally, continuing in ‘faster’ territory, and the Inventories Index was flat (the same reading as in March) and in slight contraction territory. The Prices Index moved further upward into strong expansion (or ‘increasing’) territory, as commodity driven costs continue to climb. Imports continued to grow, at a slower rate in April.

Employment

Employment has been contracting for seven months.

New orders and order backlogs suggest employment will be weak. Backlogs have been contracting for 19 months.

There is no reason to hire unless orders pick up substantially and backlogs grow.

Prices

Raw materials prices increased in April for the fourth month in a row after eight consecutive months of decreases. Of the six largest manufacturing industries, four — Chemical Products; Fabricated Metal Products; Computer & Electronic Products; and Machinery — reported price increases in April.

“The Prices Index indicated strong expansion in April, with its highest reading since June 2022 (78.7 percent). Commodity prices continue to increase, especially crude oil, aluminum, steel and plastics. Thirty-one percent of companies reported higher prices in April, compared to 24 percent in March,” says Timothy R. Fiore, Chair of the Institute for Supply Management^®. A Prices Index above 52.8 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Producer Price Index for Intermediate Materials.

This is yet more bad data for the Fed to digest.

Wages and Benefits Rise More Than Expected, Bond Yields Jump

Employer costs are soaring. The Employment Cost index (ECI) unexpectedly rose 1.2 percent in 2024 Q1, rattling the stock and bond markets.

Employment cost index data from the BLS, chart by Mish.

Yesterday, I noted Wages and Benefits Rise More Than Expected, Bond Yields Jump

Year-Over-Year and Monthly Annualized Details

• Compensation costs for civilian workers increased 1.2 percent, seasonally adjusted, for the 3-month period ending in March 2024 and increased 4.8 percent (annualized) in March.
• Compensation costs for civilian workers increased 4.2 percent for the 12-month period ending in March 2024 and increased 4.8 percent (annualized) in March.

New Biden Energy Rules Will Raise the Cost of a New Home by $31,000

Also note New Biden Energy Rules Will Raise the Cost of a New Home by $31,000

New HUD energy rules will raise the cost of home construction by imposing stricter building codes. Payback time is 90 years.

Finally, please note that Rent is up at least 0.4 percent per month for 30 months.

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