4/30/2014

by Matt MacVey

The Institute for Supply Management’s manufacturing survey for April, due out Thursday, will suggest the pace of manufacturing and the larger American economy for the summer.

The consensus expectation of 54.3 from the economists in Bloomberg’s survey would be faster growth than the 53.7 percent reported in March. A number above 50 indicates that there is growth in manufacturing.

Manufacturing growth averaged 54 percent over the last year, but was only 52.3 percent on average in quarter one. The overall economy saw real gross domestic product growth of only 0.1 percent in the first quarter. This tepid growth was caused by a 6.1 percent decrease in business investment, the largest decrease since 2011. The decrease in investment could stifle demand for capital goods made by factories.

In March, factories reported their highest numbers of the year for production, new orders, and backlog of orders. This came after a January and February that saw snow coverage and temperature lows in the Midwest and East Coast that were among the top 10 on record according to the National Oceanic and Atmospheric Administration.

“The ISM will be a little more robust in April than in March because of bottled up production that would have happened in December, January, and February,” said Robert Stein, an economist for First Trust Advisors. The question that remains to be answered is whether that growth was the result of filling orders that went unfilled because of the harsh weather or if it was a sign of a real increase in demand for factory output.

“Weather and the auto sector explain the first quarter,” said Mike Englund, Chief Economist for Action Economics. Auto sales, a large source of demand for manufacturing, were held to near one million vehicles in January and February, both down from the previous year. But sales recovered to 1.5 million vehicles in March.

Although the weather has warmed up, in early April a significant portion of the Great Lakes were still frozen over forcing manufacturers to find alternative forms of transportation for some of their goods.

New orders for durable goods in March had increased by 2.6 percent from February to $234.8 billion.

The Federal Reserve’s industrial production number, which is often correlated with production on the Institute of Supply Management survey, rose 0.7 percent in March from February, up 3.8 percent year-over-year. And there was a 1.2% upward revision for February. The positive signs from industrial production could signal that March’s production growth was not a fluke.