Manufacturing in April will likely tick up for the fourth straight month, but pressures from the Iran War are expected to continue to keep manufacturers on their toes.
Bloomberg’s economist diffusion index predicts a reading of 53.0 for the purchasing managers’ index (PMI) posted by the Institute for Supply Management, a higher increase than in March. A reading above 50 is considered a sign of an expanding manufacturing sector. The continued positive trend comes on the heels of March’s reading, which bumped up from 52.4 in February to 52.7, but, below the fold, featured a majority of manufacturers surveyed indicating anxiety over the war’s effects.
The calendar year has seen some of the first positive manufacturing index numbers since the post-Covid reopening demand explosion, which waned in Fall of 2022 as the Fed aggressively hiked rates to combat inflation. The war, beginning on February 28, has called into question what would under normal circumstances be promising signs from AI and even a possible boost from President Trump’s tariffs toward related industries like aluminum manufacturing
1. The Price is (Not) Right
The report’s “prices paid” index—a measure of the percentage of manufacturers reporting higher prices paid—hit an astronomical 78.3 in March, ascending for the eighteenth consecutive month, after just four weeks of war.
This month, expect that number to only grow, as gas, a nearly-universal input for manufacturing continues to see Iran-related increases.
The last reading as high as that of March was in June of 2022, at the peak of the post-pandemic inflation crisis. If it continues to increase, the Federal Reserve may be forced to intervene through an interest rate increase—the opposite of what President Trump has called for. That could lead to another political battle with the Fed, and economists will be watching manufacturers’ price reporting closely.
2. A New Order for New Orders
A new order index of above 50 is usually explicitly a sign of a booming economy. In the context of volatile pricing, this month may point to a little twist: manufacturers insulating themselves against further price increases
“On the one hand you could see companies bringing forward their orders now,” said Jennifer Lee, senior economist and managing director of BMO Capital Markets. “But, at the same time, companies could be keeping them at a minimum in case this comes to an end soon.”
Don’t be surprised if new orders explode while manufacturers continue to express hesitancy about the war economy.
3. Word on the Street
As mentioned, regardless of the headline index, what will manufacturers report about how they’re handling business through the war?
In March, six of the ten manufacturer quotes in the ISM report’s “What Respondents Are Saying” section expressed concern over the war.
“Geopoltiical issues and the Iran war are already waning sentiment,” one manufacturer in fabricated metal products responded. What will manufacturers be saying two months in?
4. Who’s Driving Expansion
Because most manufacturers will suffer from the Strait of Hormuz closure’s impact on key inputs like gas, helium, and aluminum, a positive reading should point to some key winners and losers in the manufacturing sector.
In recent months, AI has carried the pack, but increased energy and helium costs could start to chip away at that momentum.
5. Tariff Refunds
Tariff refunds are expected to roll out by May 11, but that doesn’t mean manufacturers aren’t planning ahead. Inputs (defined as supplier deliveries, inventories, prices and imports) may see an uptick as manufacturers expect a reliable incoming sum from the government, Lee said. But right now, nothing is predictable.
“You could see more money coming from that front, they could pay it forward for higher inputs, or they could be putting it aside for savings,” she said. “You know, there’s like so many options out there right now that could happen.”
“Again, our base case scenario is that we’re going to see an uptick in activity,” she added. “But at the same time, there’s going to still be a lot of caution, and we’re going to see that playing out.”