U.S. ISM manufacturing index drops in April, modest gains likely this year

The U.S. ISM manufacturing index dropped a bit in April and came in below consensus expectations. The index fell to 54.8, as compared with the consensus projections of 56.5. In spite of the small fall, the report indicated strength throughout the major subcomponents. The production and new orders indices continued to stay in strong expansionary territory at 58.6 and 57.5 sequentially. This foretells further gains in industrial production in the months ahead.

New export orders index was up 59.5, indicating some more momentum from external demand and rebounded export prospects for manufacturing companies. Meanwhile, the employment index moderated significantly, dropped to 52 from 58.9. However, it is still in line with positive employment gains in the sector.

The decline in overall index brings the series more in line with actual output data. Post-election, the series rose sharply; however, this sharp rise was not in line with a sharp increase in production. Instead, production has moved just modestly higher. According to a Barclays report, further modest gains are expected in 2017.