By Cara Eisenpress
U.S. manufacturing faded as a bright spot in the American recovery in April, today’s Institute for Supply Management report is likely to show.
The ISM releases its Purchaser Manager Index later today, and economists surveyed by Bloomberg estimate, on average, that it will be 53.0, half a point lower than last month’s 53.4. Any number above 50 still indicates that the economy is growing.
Regional reports across the Midwest have helped inspire this prediction. Recent numbers from both Kansas City and Dallas were weak, and Chicago’s index, released yesterday, dropped drastically. The auto industry had been keeping Chicago’s index high over the last few months and driving manufacturing growth across the U.S.
That means strong reports early this year may have been outliers, not part of a trend. A drop in both regional and nationwide ISM indices would then simply show a correction to the norm, not a worrisome slowdown.
“January was a bit of an aberration,” said Bricklin Dwyer, an economist at BNP Paribas who predicted the ISM would drop to 52.5, almost a full point.
More insight comes from last week’s durable goods orders report, which dropped to its lowest point since January 2009. Because durable goods measure the overall health of manufacturing, weighting large companies like Boeing over small factories, that report does not necessarily bode ill for the ISM index, which surveys companies both large and small. But a crummy durable goods report is not promising for the overall manufacturing sector in the coming months, whether or not a strong ISM number comes out today.
And, as recession in Europe begins to reverberate in the Asian and U.S. economies, economists believe manufacturing’s growth will slow still further. The domestic increase in consumer spending, however, brings good news for the sector; by buying more, Americans can offset slowdowns abroad. That means manufacturing is neither likely to show a drastic drop in growth, nor shrink.
“It wouldn’t be right to characterize the manufacturing sector as falling apart right now,” said Jay Bryson, a global economist at Wells Fargo.
Instead, forecasts match ISM numbers from last year, when the PMI held below 53 from July through November of 2011. Even with trouble in Europe, economists expect the index to hover around that number for the rest of the year and say that winding up below 50—showing contraction in the sector—is unlikely.
“I would be floored if we got that low tomorrow,” said Bryson.