U.S. manufacturing activity sees unanticipated slump

A measure of U.S. manufacturing activity unexpectedly dropped in April to the lowest level since 2020 as growth in orders, production and employment softened.

The Institute for Supply Management’s gauge of factory activity fell to 55.4 last month from 57.1, according to data released Monday. Readings above 50 indicate expansion. The figure was weaker than all but one estimate in a Bloomberg survey of economists, which had a median projection of 57.6.

The latest data underscore the impact from lingering supply constraints, made worse by restrictive Covid-19 measures in China. Measures of both new orders and production dropped to their lowest levels since May 2020, though remained above the threshold that indicates growth.

Seventeen manufacturing industries reported growth in April, led by apparel, machinery and plastics. The supplier deliveries gauge climbed to a five-month high, showing longer lead times as factories remain haunted by transportation bottlenecks and delays.

“The U.S. manufacturing sector remains in a demand-driven, supply chainconstrained environment,” Timothy Fiore, chair of ISM’S Manufacturing Business Survey Committee, said in a statement. “In April, progress slowed in solving labor shortage problems at all tiers of the supply chain.”

Average lead times for production materials lengthened in April to a record 100 days. Lead times for capital equipment grew to 173 days, matching the highest in data back to 1987, while for supplies used in maintenance, repairs and operations they rose to 49 days.

A measure of prices paid by manufacturers settled back somewhat but remains extremely elevated.

Meantime, the employment gauge fell to a sevenmonth-low of 50.9, suggesting a slower pace of hiring in April. The government’s monthly jobs report, out Friday, is projected to show manufacturers added more than 30,000 jobs last month.

The headline gauge suggests shifting consumer spending patterns. Data last week showed inflationadjusted purchases rose in March, driven by outlays on services rather than goods.

ISM’S data also pointed to a slight improvement in the mismatch between supply and demand. Backlog growth decelerated, and a gauge of customer inventories rose to its highest since December 2020, though remains historically low.