U.S. manufacturing sector cools off slightly - MarketWatch

U.S. manufacturing activity grew at a slightly slower pace in April, the second straight month of cooling, according to a closely followed index released Monday.

The Institute for Supply Management said its manufacturing gauge dipped to 60.4% last month from 61.2% in March, mostly because of slower growth in production and new orders.

Economists surveyed by MarketWatch had forecast the index to dip to 59.5%.
Despite the decline, the manufacturing sector has expanded 21 straight months, and ISM index is coming off a seven-year high just two months ago. Any reading over 50 indicates more manufacturers are expanding instead of shrinking.
“Maybe GDP did slow in the first quarter but that doesn’t mean the economy is weak everywhere,” said Joel Naroff, president of Naroff Economic Advisors.
U.S. stocks maintained small gains after the ISM report.
Seventeen of the 18 industries tracked by Tempe, Ariz.-based ISM expanded in April, led by wood, plastic and rubber products. The furniture industry was the only one to report contraction.

Although manufacturers are hiring more workers to keep up with higher demand, they also continue to express alarm about the cost of raw materials.
“While the manufacturing sector is definitely performing above most expectations so far in 2011, manufacturers are experiencing significant cost pressures from commodities and other inputs,” said Norbert Ore, who heads the ISM survey committee.
The ISM’s price index rose 0.5 percentage points to 85.5%, a nearly three-year high.
“Major industries have been impacted by the cost of raw materials such as metals and petroleum,” said business consultant Rich Bergmann, head of Accenture’s global-manufacturing practice.

Some 72% of respondents said they paid more for raw materials vs. only 1% who paid less. Five months ago, only 48% said they paid more for raw materials.
“Rapidly rising raw material costs are putting extreme pressure on profits,” one food company’ purchasing manager said.

The ISM’s employment index, meanwhile, fell to 62.7% from 63.0% in March, but the readings for the first four months of 2011 are the highest in 38 years.
Bergmann said many companies are hiring to keep up with a surge in orders, especially in fields such as aerospace and autos. The sharp rise in orders has also allowed them to spread out the higher cost of raw materials.
“They are weathering the storm,” he said.
The backlog of orders index posted the biggest increase, jumping to 61.0% from 52.5% in March.
Also, the inventories index rose to 53.6% from 47.4%, as companies seek to restock to meet a high level of orders.
The production index experienced the biggest drop, falling 5.2 percentage points to 63.8%.

The new orders index, a strong indicator of future sales, fell a smaller 1.6 percentage points to still-high 61.7%.
“The market continues to get stronger month over month,” one transportation-equipment manager said. “Recovery is faster than anticipated.”
The ISM asks about 350 purchasing managers if their business got better or worse over the past month. These senior executives are involved in all sorts of decisions, including hiring, the purchase of raw materials, the delivery of supplies, and the management of inventories.