US manufacturing sector’s growth likely to remain slow

US ISM manufacturing index eased in April after rising for three straight months. The headline index fell 1 point to 50.8, below consensus expectations of a moderate rise to 51.4. Even as the activity’s pace slowed slightly in April, the country’s manufacturing sector continues to recover with the headline figure remaining in the expansionary zone, noted TD Economics.

The manufacturing activity in the US has stabilized slightly as the headwinds from low energy prices, weak external demand and strong dollar have eased in recent months. However, these headwinds are not expected to go away soon, added TD Economics. Especially, the US dollar is expected restart gaining after the US Fed begins its tightening cycle later in 2016.

In the mean time, energy prices are likely to remain range bound in the near term as supply still exceeds demand. Overall, this suggests that the US manufacturing sector’s growth is expected to remain slow.

Higher value of the US dollar and the doubtful outlook is likely to continue to weigh on sentiment of employers that will subsequently lead to weaker investment and hiring intentions, said TD Economics. Meanwhile, the employment subcomponent continued to remain in the contraction zone in spite of a slight rise. This implies that plans for hiring will be delayed at the moment throughout the manufacturing sector.

Delving in the details of April’s ISM manufacturing report, six out of ten subcomponents fell last month. Higher drops were seen in production and new orders index that fell to 54.2 and 55.8 respectively. The index reversed the gains seen in March. Backlog orders and inventories also declined in April.

The employment subcomponent rose 1.1 to 49.2; but continues to be in the contraction zone. Meanwhile, trade indicators also saw recovery as exports and imports subcomponents both rose in April. Prices paid subcomponent continued to rise in April, up 7.5 points to 59. This is the highest level seen since September 2014 and hints that price pressures for raw materials continued to build in April, noted TD Economics.