April manufacturing output declines, for second straight month, reports ISM

April manufacturing activity slipped for the second straight month, according to the new edition of the Manufacturing Report on Business, which was issued today by the Institute for Supply Management (ISM).

The report’s benchmark reading, the PMI, came in at 48.7 (a reading of 50 or higher indicates growth), down 0.3% from March’s 49.0 reading. The last two months of declines were preceded by gains, with January and February readings at 50.9 and 50.3, respectively.

The April PMI reading topped the 12-month average, of 48.5, by 0.2%. January’s 50.9 and October’s 46.9 mark the respective high and low readings for that period.

ISM reported that nine manufacturing sectors saw growth in April, including: Apparel, Leather & Allied Products; Petroleum & Coal Products; Plastics & Rubber Products; Electrical Equipment, Appliances & Components; Textile Mills; Computer & Electronic Products; Nonmetallic Mineral Products; Miscellaneous Manufacturing; Machinery; Chemical Products; and Primary Metals. Sectors seeing contraction included: Wood Products; Furniture & Related Products; Paper Products; Food, Beverage & Tobacco Products; Transportation Equipment; and Fabricated Metal Products.

The report’s key metrics were mixed in April:

• New Orders, considered the engine driving manufacturing, rose 2.0%, to 47.2, contracting, at a slower rate, for the third consecutive month. The category had not seen consistent growth since a 24-month stretch of expansion ended in May 2022 (ISM reported that eight sectors saw growth in New Orders in April);
• Production, at 48.3, decreased 4.3%, contracting, at a faster rate, for the second consecutive month, following two months of growth, which was preceded by eight consecutive months of contraction to end 2024, with seven sectors reporting growth;
• Employment, at 46.5, increased 1.8%, contracting, at a slower rate, for the third consecutive month (and 30^th time in the last 37 months), with five sectors reporting growth;
• Supplier Deliveries, at 55.2 (a reading above 50 indicates slower deliveries), were off 1.7% from March, slowing, at a slower rate, for the fifth consecutive month, with 10 sectors reporting slower supplier deliveries;
• Backlog of Orders, at 43.7, fell 0.8%, contracting, at a faster rate, for the 31^st consecutive month, following 27 months of growth, with five sectors reporting growth;
• Prices, at 69.8, rose 0.4%, increasing, at a faster rate, for the seventh consecutive month, rising 15 percentage points over the past six months, for its highest reading since June 2022’s 78.5, with 15 sectors reporting higher prices;
• Inventories, at 50.8, fell 2.6%, growing, at a slower rate, for the second consecutive month, with five sectors reporting higher inventories, with the last two months marking the highest readings since December 2022; and
• Customer Inventories, at 46.2, down 0.6%, falling too low, at a faster rate, for the seventh straight month, with two sectors reporting inventories’ being too high

Tariffs and the economy were again the main themes cited in ISM panelist comments.

“Uncertainty over tariffs is providing a big challenge from both Tier-1 suppliers we will have to pay tariffs on directly and Tier-2 suppliers that will try to pass tariffs through to us in the form of price increases and tariff surcharges,” said a Chemical Products respondent.

And a Transportation Equipment panelist said that tariffs are impacting operations in the form of, delayed border crossings and duties calculations that are complex and not completely understood, citing potentially overpaying duties, being unsure of potential drawbacks and also noting that the implementation of tariffs and their application is sudden and abrupt, with the panelist’s business taking countermeasures.”

In an interview with LM, Tim Fiore, Chair of the ISM's Manufacturing Business Survey Committee was direct, in saying manufacturing is heading in the wrong direction.

Citing the Production number, at 44.0, which he said serves as a surrogate for revenue, is not positive, coupled, with another month of declining New Orders and Backlog of Orders numbers, snuffing out hope at the end of 2024 that the latter would be at 50 or higher by April.

Addressing the impact of tariffs and trade policy on manufacturing, with President Trump’s 90-day pause on reciprocal tariffs set to expire on July 9, Fiore explained that it is largely tied to federal budget reconciliation efforts, which he said could easily drag into the fourth quarter.

“If that is the case, President Trump is going to keep the confusion in the tariff world,” he said. “You are really looking at the whole year as being unknown, in terms of where things are really headed…in order to manage this Congress budget reconciliation. In the meantime, people are getting laid off and work is slowing down. Investments aren't happening. We're not growing. We thought we would be growing in January. The sentiment in November and December shifted to positive, with the expectation of a pro-business environment, and then the reality around tariffs started to hit in February, March, and April.”

That leads to the question, he said, of how long will Trump put up with this, since he's made this? What’s more, he added that the White House is keen on cutting the corporate tax rate to 15% from 21%, which does not benefit the average customer buying goods from China.

Should there be no material changes in regards to tariffs and trade policy, Fiore observed that could have a major impact on manufacturing prices, which could potentially end up seeing a reading of 100.

“A 10% tariff on everything imported is deep versus the companies that buy steel and aluminum in significant enough quantities where tariffs would even hit their radar,” he said. “It’s a much bigger universe. I could see prices hitting 100, especially after steel and aluminum is still making its way through the value chain. The impact back goes back to February. When they announced the tariffs, prices went immediately up. You address it with your first-tier suppliers, and as the months go on, their suppliers of the first tier start to come back to the first tier and say, ‘I can't do this. You have to pay.’ And that then leads to another conversation with the panelists, companies. This is probably a three-to-four-month evolution from the announcement to its stabilizing, but in the end, when all this is stabilized, who wants to pay 35% more than what they were paying in 2019?”

Looking at inventories, Fiore said that the April’s 50.8 reading is higher than normal, with the typical range between 48-to-50 and not seeing a lot of movement. March’s reading, at 53.4, reflected the pull-forward, which had been intact since at least February, leaving things equal sequentially, while output is off.

“Manufacturers are carrying more output than they really should,” he said. “I think a lot of this has to do with the fact that there's no more to pull forward. We spent 32 months bleeding down over ordering, and too much inventory. There isn't much inventory in a manufacturing cycle. We went from a profit-focused year for 2025, and we're now in a liquidity-focused year. So, this is the third year of liquidity focus, the second year where we converted from a profit focus to a liquidity focus. People are concerned now about their money. They're concerned about inflation, they're concerned about their long-term bonds, and there isn't any inventory to avoid the tariffs. At this point, you've seen the best of it. In the manufacturing world, three months of inventory is a lot. Nobody builds six months of inventory.

On the import side, Fiore said that the 3% decline, to 47.1, was a timing issue, explaining that had it broken 50, it would be viewed as a residual impact of pull-forward activity, with the current reading reflecting the current level of activity.

As for exports, he said that the 6.5% decline, to 43.1, has not been seen since the Great Recession, aside from the pandemic.

And he added that there are two things in the report that resemble activity seen during the Great Recession—the level of New Export Orders, which are usually in the 55-to-65 range, and the percent distribution of New Orders levels being dynamic.

“People are either seeing more new orders or seeing less; we have not seen that kind of dynamic, at that level, since 2009,” he said.