April’s ISM manufacturing report came in slightly below expectations. Economists were expecting the headline index to post 51.4 in April and instead it came in at 50.8, down from 51.8 in March. While the headline index slightly disappointed, we are beginning to see signs of improvement in prices, production and trade.
The prices paid component surged to 59 from 51.5 in March. This is the highest level since September 2014. Economists were expecting the prices paid index to increase to just 52. As the first chart below shows, the moderation in the year-over-year decline in oil prices probably helped to boost the prices paid index. Even if oil prices remain where they are at currently over the next several months, the year-over-year decline will improve and this will probably continue to bolster manufacturing prices.
The year-over-year decline in industrial production may begin to improve as well. In the chart below, we show ISM production index with a 5-month forward lag compared to the year-over-year change in IP. The current reading of 54.2 is usually associated with a positive year-over-year change in IP. We would expect to see the year-over-year change in IP improve over the next several months.
Trade looks set for a slight improvement as well. In the first chart below, we show the ISM new export orders index lagged forward 3-months compared to the year-over-year change in nominal and real exports. Both export series have been declining on a year-over-year basis since late 2014. The latest improvement in the new export orders index a sign that this decline may be moderating. Import orders are not looking as buoyant as export orders. Based on the second chart below, which shows the year-over-year change in imports compared to the ISM imports index pushed forward 4-months, we would expect the year-over-year change in US imports to be somewhere around flat to slightly negative over the next quarter.