The pace of manufacturing growth in the U.S. cooled somewhat in April, even though the segment continues to expand. New orders and factory employment decelerated from March levels while the nation’s leading production index, the Institute for Supply Management’s PMI, declined by 2.4 percent to 54.8.
Any number above 50 indicates growth, and most of the ISM’s indexes have moved up and to the right for the past 8 months. April’s new orders Index registered 57.5 percent, a decrease of 7 percentage points from the March reading of 64.5 percent. "Last month, new orders were really high and 57.7 is still a great number," said Brad Holcomb, chair of the ISM's Manufacturing Business Survey Committee. "Sixteen of our 18 segments grew last month, and keep in mind that anything over 50 is growth. This month was better than last month and this is progressive -- the PMI so far this year is better than any month last year."
The employment index registered 52 percent, a decrease of 6.9 percentage points from the March reading of 58.9 percent. "Growth in new orders fuels hiring," Holcomb explained, "and April indicates factories are not adding as many people as expected."
Commentary from the ISM’s panel of manufacturing executives indicates factories are still having a hard time finding skilled workers. The high-tech trade association IPC – Association Connecting Electronics Industries conducted a “fast-facts” study in late April to learn more about the skills gap as it affects U.S. electronics assembly manufacturers. The results, Findings on the Skills Gap in U.S. Electronics Manufacturing, indicate that most companies are having a hard time recruiting qualified production workers, and an even harder time finding qualified engineers and other technical professionals.
Among production jobs, general assembler and hand solderer are the most difficult to fill, reported IPC. On the professional side, quality control, process and entry-level electrical engineers have been hardest to find. Insufficient experience is the most common reason that applicants do not qualify for most positions. For many engineering and other technical professional positions, however, the leading reason jobs went unfilled was that there were no applicants at all.
IPC respondents cited many essential skills that are in short supply, but the most commonly cited are soldering for production jobs, and engineers with industry experience, especially in process, test and quality control.
ISM panelists generally reflected stable to growing business conditions; with new orders, production, employment and inventories of raw materials all growing in April over March. The ISM’s production index increased 1 percent to 58.6 percent, 1 percentage point higher than the March reading of 57.6 percent.
Government spending remains strong in a couple of market sectors. “Bookings are slow; however, we did receive a very large government order,” according to an executive in computer and electronic products. “Military and government spending is remaining strong. Commercial business has been flat to slightly down," said a manager in the transportation equipment industry.
At the same time, some executives express concern about economic and political headlines. "While world/political headlines cause personal anxiety, business conditions remain solid,” said one manufacturer. Export orders grew slightly in April to 59.5, the highest level since November 2013. "Let's not pass over the new exports number," Holcomb said. "Commerce is still flowing across the pond. The Eurozone PMI is up, and there's some additional response from the attenuating cost of the dollar."
The PMI's gauge of customer inventories dropped to the lowest level since July 2015, a sign bookings and production will remain strong. Inventories of raw materials registered 51 percent, an increase of 2 percentage points from the March reading of 49 percent. The prices index registered 68.5 percent in April, a decrease of 2 percentage points from the March reading of 70.5 percent, indicating higher raw materials prices for the 14th consecutive month, but at a slower rate of increase in April compared with March.
"Overall we are off to a very solid start this year," Holcomb concluded. "Political headlines aside, business remains strong."