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Manufacturing Slows as Input Prices Accelerate

Posted by Joseph Trevisani on May 1, 2018 7:04:36 PM

The U.S. factory sector grew in April at the slowest rate in nine months while prices for manufacturing materials increased at the sharpest pace in seven years driven by supply shortages and worries over the impact of U.S. trade policy.

The purchasing managers index from the Institute for Supply Management dropped to 57.3 last month from 59.3 in March and February's post recession high of 60.8. Economists in the Reuters poll had predicted a reading of 58.3. Prices for manufacturing raw materials and other inputs rose for the fifth straight month with the prices-paid gauge jumping to 79.3 from 78.1, the highest since April 2011.


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Input prices have been pushed higher by the strong performance of the manufacturing sector. Over the past 15 months the factory index has averaged 58.0, the best in 13 years. The index measuring order backlogs was the highest in almost 14 years in April and delivery times were extended to the second-longest since March 2010.

Employment has fallen back from its highs of last and early this year with the April index at 54.2, off from the prior month's 57.3 and the six year top of 59.8 in October. Manufacturing payrolls have added an average of 22,000 jobs a month over the past half year, the best six months since the recession.

April payrolls will be reported on Friday. Non-farm employment is expected to rise 192,000 in the Reuters poll from March's surprisingly weak 103,000. Factories are thought to have added 20,000 employees, on par with 22,000 in March.


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Trump administrative economic policies have been somewhat double-edged for the manufacturing sector.

The tax bill provided most Americans with additional income supporting consumer demand and regulatory reform has made it easier for many business to expand boosting factory output and employment. But supply-chain disruptions from tariffs on imported steel and aluminum and the tightening availability of materials have pushed prices higher.

In addition, energy costs have surged, West Texas Intermediate, the U.S. crude standard reached $69.56 last month, a three year high. It closed at $67.25 on Tuesday, 3.3 percent below the April 19th top.


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The index for new orders slipped to 61.2 in April from 61.9, the lowest since July. Order backlogs rose to 62, deliveries increased to 61.1, equaling the second-highest score since 2010.

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading



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