Summary
Earlier today, the Institute for Supply Management reported that its index measuring the economy's manufacturing activity fell during April, marking the fifth consecutive month of declines. The latest data also indicated a small easing in price pressures, although these remained at levels historically high by ISM's measurement standards.
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The Institute for Supply Management reported today that its index measuring the economy's April manufacturing activity ("PMI") came in at a reading of 53.3, down from March's 55.2. The April result was noticeably weaker than a consensus forecast that was looking for something around 55.0.
This index is configured such that readings above 50.0 indicate sector expansion. Readings below this value are consistent with contraction.
April's drop marked the fifth consecutive month of declines in the PMI. April's 53.3 reading was well below the index's most recent peak -- 62.8 in January of 2004.
The PMI's price component fell a modest 2.0 points in April, to 71.0. As in the overall index, values above 50.0 indicate expansion, and April's 71.0 reading remained high by historical standards. Moreover, April represented the 38th consecutive month in which this measure showed rising prices. In May of 2003, the recent trough, the price component stood at a much lower 51.5.
If firms are passing these higher prices along, it is contributing to inflationary pressures. And if they are not able to pass them along, rising prices are contributing to a squeeze on profit margins.
Over recent months, there is growing indication that companies have gained some pricing power, so the situation at present may actually represent the worst of two worlds: (1) Higher prices that are being passed along that are adding to overall inflationary pressures, but (2) the inability to pass along all price increases, thereby creating margin pressures, too.
ISM announced that 52% of its survey respondents reported higher prices during April, while 10% reported lower ones. This compared with March results that were 38% and 7%, respectively. However, the overall shift in skew from the trough during the summer of 2003 remained intact. For instance, in August 2003, these numbers were 19%/13%.
To illustrate how the numbers have been trending, the following table examines overall and price data over the last 28 months. The section following the table breaks out specific commodities that were up and down in price, or were in short supply during April, as reported to ISM by its survey respondents.
(NOTE: All data below incorporate the latest US Department of Commerce seasonal-adjustment factors used by ISM. In its manufacturing index, ISM does not seasonally adjust the price component.)
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INSTITUTE FOR SUPPLY MANAGEMENT PMI INDEX
-- TOTAL INDEX AND PRICE COMPONENT
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Respondents Reporting
Higher, Lower, or
Unchanged Prices
Month/ Overall Price ---------------------
Year Index Index Higher Lower Unch.
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04/05 53.3 71.0 52% 10% 38%
03/05 55.2 73.0 51% 5% 44%
02/05 55.3 65.5 38% 7% 55%
01/05 56.4 69.0 45% 7% 48%
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12/04 57.3 72.0 52% 8% 40%
11/04 57.6 74.0 55% 7% 38%
10/04 57.5 78.5 61% 4% 35%
09/04 59.1 76.0 55% 3% 42%
08/04 59.6 81.5 67% 4% 29%
07/04 61.6 77.0 58% 4% 38%
06/04 61.2 81.0 66% 4% 30%
05/04 62.6 86.0 74% 2% 24%
04/04 62.3 88.0 77% 1% 22%
03/04 62.3 86.0 73% 1% 26%
02/04 62.1 81.5 65% 2% 33%
01/04 62.8 75.5 54% 3% 43%
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12/03 62.1 66.0 37% 5% 58%
11/03 61.3 64.0 33% 5% 62%
10/03 57.7 58.5 26% 9% 65%
09/03 55.1 56.0 21% 9% 70%
08/03 55.6 53.0 19% 13% 68%
07/03 52.5 53.0 21% 15% 64%
06/03 50.4 56.5 26% 13% 61%
05/03 49.8 51.5 21% 18% 61%
04/03 46.1 63.5 37% 10% 53%
03/03 46.4 70.0 47% 7% 46%
02/03 49.9 65.5 <------ NA ------>
01/03 52.8 57.5 <------ NA ------>
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Commodities Reported in Short Supply During April:
(NOTE: The number of consecutive months the commodity is listed is indicated after each item.)
Caustic Soda (3); and Steel (16).
Commodities Reported Up in Price During April:
Aluminum (18); Aluminum Extrusions; Beef; Butadiene; Caustic Soda (12); Chemicals (15); Coal; Copper (7); Corrugated Containers (15); Diesel Fuel (8); Energy (3); Freight (14); Fuel (3); Fuel Oil (2); Fuel Surcharges; Gasoline (3); Glass; LDPE; Machined Components (2); Natural Gas (33); Paper (14); PET; Petroleum-Based Products (2); Plastic Products (various forms) (15); Plastic Resin (3); Plastics (9); PVC; Resins (9); Rubber-Based Products; Steel* (19); Titanium (2); Titanium Dioxide; Wood (2); and Wood Pulp.
Commodities Reported Down in Price During April:
Steel (2).*
*Reported as both up and down in price.
On Wednesday (5/4), ISM will report on the April results for its service-sector index
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