ISM Suggests Manufacturing Weakness May be Bottoming

The April summary of U.S. manufacturing conditions, from the Institute for Supply Management, unexpectedly rose to 54.7 (consensus 51), from 50.9 last month. Any number above 50 indicates expansion.

Strength was broad-based, with most categories rising. Notably, production rose over 4 points to 57.3, new orders rose 7 points to 58.5, and order backlogs increased 7.5 points to 54.5. All three are at their highs for the past year, and in addition, inventories shrank a point.

Prices paid also rose to their highest level since last August at 73. This will worry the Fed on the inflation front as it indicates higher energy prices are working through the system. Employment also rose back into positive territory, gaining almost 4.5 points to 53.1, also the highest level since last August. Some dealers are starting to discuss raising their employment estimate for this Friday. Consensus is for 100k in new jobs for April.

Export orders rose to a six month high, indicating the dollar weakness is helping manufacturers become more competitive globally.

Today's report will give hope that the manufacturing contraction is bottoming, and that inventories have been worked back down to reasonable levels. The gap between orders and inventories is the widest it has been in over two years, which is a leading indicator for growth.