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Economic Watch: Manufacturing Growth Slows, Consumers Optimistic

The level of manufacturing in the U.S. was unchanged in April compared to the month before, according to a new survey of the nation’s purchasing managers.

Evan Lockridge
Evan LockridgeFormer Business Contributing Editor
May 1, 2015
Economic Watch: Manufacturing Growth Slows, Consumers Optimistic

Photo: Revisorweb via Wikimedia Commons

4 min to read


Photo: Revisorweb via Wikimedia Commons

The level of manufacturing in the U.S. was unchanged in April compared to the month before, according to a new survey of the nation’s purchasing managers.

The latest Institute for Supply Management’s Purchasing Managers Index registered 51.5 for the month, indicating economic activity in the manufacturing sector expanded in April for the 28th consecutive month, but was at its slowest pace since May 2013.

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A reading above 50 generally indicates expansion.

The New Orders Index registered 53.5, an increase of 1.7 percentage points from March, while the Production Index registered 56, 2.2 percentage points higher.

While the March and April PMI were equal, 15 of the 18 manufacturing industries reported growth in April, while only 10 industries reported growth in March, indicating a broader distribution of growth in April.

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A separate report from the financial information services provider Markit also showed U.S. manufacturing in April lost some of its momentum.

Markit's final U.S. Manufacturing Purchasing Managers’ Index registered above the 50 no-change threshold but fell to a three-month low of 54.1 -- still indicating a solid rate of improvement and above its long-run trend level of 52.2.

Weighing most on the PMI in April was a slower rise in production, according to Markit. The other main factor contributing to the fall in the headline index during April was a slower rise in incoming new business. New order growth eased to a three-month low, but remained strong in the context of historic survey data.

“With manufacturing output growth slowing to the weakest seen so far this year and exports falling for the first time since November, the survey results raise worries that the dollar’s appreciation is hurting the economy,” said Chris Williamson, chief economist at Markit. “The slowing in the economy is accompanied by a renewed weakening of price pressures, linked to the exchange rate bringing down the cost of imports.”

He said the weakening growth trend and fall in price pressures add to a growing clutch of disappointing numbers which this week caused the U.S. Federal Reserve to indicate it will hold off from interest rate hikes until a clearer picture emerges of the economy’s health.

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Consumers Remain Optimistic

Despite the disappointing manufacturing numbers, consumers remain upbeat. The University of Michigan Survey of Consumers released Friday indicated consumer sentiment in April was at its second highest level since 2007. It also recorded a higher average level during the last five months than anytime since May 2004.

The index posted a 3.1% gain from March and 14% improvement from a year ago. Measures of consumer sentiment of current and future economic expectations also had strong gains.

“Consumer optimism has become increasingly dependent on the persistence of low inflation and low interest rates as well as slowly improving prospects for jobs and incomes," said Survey of Consumers Chief Economist, Richard Curtin. “While nearly two-thirds of all consumers anticipate rising interest rates during the year ahead, they anticipate very minimal increases.

"Indeed, consumers must judge the negative impact of higher interest rates to be easily offset by the positive impact of expanding jobs and incomes. That trade-off accompanied rate hikes in the past, but it has never been undertaken when interest rates have been so low for so long.”

Construction Spending Falls

Another report, also released Friday by the Commerce Department, shows construction spending in the U.S. fell 0.6% in March after little change the month before, marking the fourth out of the past five months it has been flat or fallen.

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Compared to the same time a year ago it is up 2%. Also during the first three months of 2015 it is 3.2% higher than during the first quarter of last year.

The drop was the biggest since June, as home building fell 1.6% and government construction declined 1.5%.

Consumer Spending Increases

All these reports followed one from Thursday showing consumer spending in the U.S. increased in March at the best pace since December, according to the Commerce Department.

The 0.4% increase in purchases follows an upwardly revised 0.2% gain in February, but the March hike was slightly less than many analysts were expecting.

Personal income was flat in March, following a 0.4% rise the month earlier, the weakest monthly increase since December 2013.

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This was in the wake of a separate report earlier in the week showing the U.S. economy expanded at the annual rate of just 0.2% in the first quarter of the year, down from the 2.2% yearly pace in the gross domestic product in the final quarter of 2014.

“Following yesterday’s dismal GDP report, this morning’s lackluster consumption numbers were not unexpected,” said Lindsey Piegza, chief economist at the investment banking firm Sterne Agee. “According to the Bureau of Economic Analysis, personal consumption rose 1.9% across the first three months of the year, the weakest quarterly spending rate since the first quarter of 2014 when growth slowed to a negative 2.1% pace.

"While lower gasoline prices have helped pad consumer’s pockets, lower prices at the pump will not sustain consumer patterns indefinitely. Long-term support comes from organic job and income growth.”

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