U.S. manufacturing pulled off a three-year low in April as new orders improved slightly and employment rebounded, but activity remained depressed amid higher borrowing costs and tighter credit, which have raised the risk of a recession this year.
Despite the weakness in factory activity and demand for goods reported by the Institute for Supply Management on Monday, there was a build-up of inflation pressures last month.
"The persistent pricing pressure on manufacturers should abate in the coming months. Still, the Fed will likely hike rates this week and perhaps start telegraphing their likely decision to pause the rate-hiking campaign later this summer." Though a separate S&P Global survey showed manufacturing expanding for the first time in six months in April, factories continued to report hesitancy among customers to place orders because of higher prices and economic uncertainty.
"The proportion of manufacturing GDP with a composite PMI calculation at or below 45 percent - a good barometer of overall manufacturing weakness - was 12 percent in April, compared to 25 percent in March," said Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee. Businesses are cutting back on restocking in anticipation of weaker demand later this year. The government reported last week thatfell in the first quarter for the first time since the third quarter of 2021.
Food, beverage and tobacco products manufacturers reported that "after consecutive years of inflation and aggressive pricing to our retailers, we are starting to see resistance in the willingness to pass along pricing to end consumers."
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