By Ken Christensen
U.S. factories expanded at a quick pace in the last two quarters, but their momentum will slow in April.
The Institute for Supply Management will release its monthly survey results tomorrow, giving insight into the health of the nation’s manufacturing sector. Factories have grown every month since August 2009—evidenced by consecutive survey numbers above 50—and April will be no different.
But economists polled by Bloomberg predicted a slight drop from March’s growth rate, to 53.0 from 53.4.
“It’s pretty clear that U.S. manufacturing is slowing,” said Dan Meckstroth, senior economist at the Manufacturers Alliance for Production and Innovation.
At the start of 2012, manufacturing grew at an annualized rate of 10 percent, well above the 3 percent annualized growth rate for the overall economy. “It just can’t possibly continue at its current pace,” he said.
An unseasonably warm winter inflated production numbers for January, February and March. Consumers went to car lots instead of staying inside. Business owners who normally shut down for the winter left their doors open.
“Just a little more demand than normal is exaggerated through these seasonal factors,” Meckstroth said. “It all adds in to greater production numbers.”
Recently released regional numbers are also a large factor in economists’ predictions. Though manufacturing expanded in Chicago in April, the Business Barometer, released today, made its weakest showing in 29 months. The New York area and Philadelphia experienced similar disappointments this month, and worst of all, the Dallas PMI indicated that business flipped from expansion to contraction in the Texas area.
“We expect the ISM to follow suit,” said Tom Simons, a money market economist for Jefferies Group, Inc.
Abroad, the PMI in Europe showed a faster rate of contraction in April, a sign that demand is still weak from double-dip recessions.
“We’re seeing slower growth in the rest of the world,” said Jay Bryson, global economist for Wells Fargo. “Though it seems like Asia might be turning the corner.”
Despite waning demand in Europe and China, a competitive advantage in high-tech machinery and transportation has kept U.S. export orders on the rise. Domestically, pent-up demand will be released as consumers buy automobiles and companies invest in capital equipment.
Still, moderation in factory employment and production will likely continue beyond April, reflecting a slowdown in the recovery as a whole.
“You’re going to see slower growth over the next two quarters,” Bryson said.