US: Factory sector could be running even hotter were it not for a variety of constraints – Wells Fargo

April’s ISM Manufacturing report came in below expectations showing an unexpected decline in the main index to 60.7. Analysts at Wells Fargo explain production is being held back by a lack of input components, reflected by backlogged orders surging to a record high.

Key Quotes: 

“The message from today's ISM manufacturing report is that the factory sector could be running even hotter were it not for a variety of constraints. The headline measure slowed to 60.7 in April from 64.7 in March. Any figure above 50 signals expansion and a figure north of 60 signals broad and strong expansion. Still, the sharp move lower in April is not quite consistent with regional PMIs and our own discussion with manufacturers around the country.”

“Hiring also slowed in April, with the employment index slipping to a still-strong 55.1. Comments focused more around issues securing materials and their associated cost, rather than labor issues this month, but the report's summary noted that worker absenteeism and difficulties filling open positions continued to be factors holding back overall manufacturing growth.”

“We still look for manufacturers to add to payrolls in Friday's employment report, but the ISM employment index offers a cautionary tale that the biggest near-term impediment to hiring may be the frictions associated with booming economic growth.”