PMI Misses Estimates Slightly, Forward Outlook Mixed

The Institute of Supply Management released their PMI survey results for the period ending April 2013. The PMI of 50.7, albeit still showing growth, is pointing towards a weakening manufacturing environment. The decline is mostly attributable to steep fall offs in inventory levels (46.5, down 3 points) and employment (50.2, -4). Somewhat surprisingly, production and new order rates gained in the month, by 1.3 points to 53.5 and 0.9 points to 52.3, respectively. The breadth of the report is as follows.

WHAT RESPONDENTS ARE SAYING …

• "Business can be described as flat at best." (Food, Beverage & Tobacco Products)
• "Production is still strong; several new projects to support alternative energy." (Primary Metals)
• "Slight uptick in business, but overall continuing slowdown in defense due to budget/sequester." (Computer & Electronic Products)
• "We have concerns about safety of doing business in South Korea. Our largest customer and part owner is in South Korea." (Electrical Equipment, Appliances & Components)
• "Automotive demand remains firm." (Fabricated Metal Products)
• "Business continues at a steady pace." (Machinery)
• "General business conditions and industrial markets remain strong." (Transportation Equipment)
• "Seasonal pick-up underway in the office furniture industry." (Furniture & Related Products)
• "Market has slowed this month — weather in some parts of the country, also customers built inventory in anticipation of building increase, but the economy is still slow to pick up this spring." (Wood Products)
• "Overall, volume is steady or slightly declining. Q1 sales volume is lower than projected." (Chemical Products)

MANUFACTURING AT A GLANCE APRIL 2013
Index	Series Index Apr	Series Index Mar	Percentage Point Change	Direction	Rate of Change	Trend* (Months)
PMI™	50.7	51.3	-0.6	Growing	Slower	5
New Orders	52.3	51.4	+0.9	Growing	Faster	4
Production	53.5	52.2	+1.3	Growing	Faster	8
Employment	50.2	54.2	-4.0	Growing	Slower	43
Supplier Deliveries	50.9	49.4	+1.5	Slowing	From Faster	1
Inventories	46.5	49.5	-3.0	Contracting	Faster	2
Customers' Inventories	44.5	47.5	-3.0	Too Low	Faster	17
Prices	50.0	54.5	-4.5	Unchanged	From Increasing	1
Backlog of Orders	53.0	51.0	+2.0	Growing	Faster	3
Exports	54.0	56.0	-2.0	Growing	Slower	5
Imports	55.0	54.0	+1.0	Growing	Faster	3
OVERALL ECONOMY				Growing	Slower	47
Manufacturing Sector				Growing	Slower	5

Looking at the forward looking and other indicators, customer inventory declined in the period and is more on par with the survey results long-term average. This suggests to me that the forward new order levels will be 'data-dependent'. That said, there still are a few results well north of the long-term average within the last six months that still could herald a decline in new order levels. Order backlogs also increase in the period, the third monthly increase, which could give a boost to future production rates.