Activity in the U.S. manufacturing sector expanded at the slowest rate of the year in April, according to a report released by the Institute for Supply Management on Wednesday.
The ISM said its purchasing managers index fell to 50.7 in April from 51.3 in March, although a reading above 50 still indicates growth in the manufacturing sector.
While the reading above 50 points to the fifth consecutive month of growth in the manufacturing sector, the drop has pulled the index down to its lowest level since December of 2012.
Amna Asaf, an economist at Capital Economics, said, "At 50.7, the headline index points to a deceleration in GDP growth to around 1% annualized in the second quarter, down from 2.5% in the first."
"Actual growth should be a little stronger, we have 2% penciled in for now, but clearly this isn't the sort of news that would convince the Fed to curb its asset purchases," she added.
The decrease by the headline index was partly due to a notable slowdown in the pace of employment growth in the manufacturing sector, with the employment index dropping to 50.2 in April from 54.2 in March.
Payroll processor Automatic Data Processing, Inc. (ADP) released a report earlier in the day showing a loss of 10,000 manufacturing jobs in April compared to the addition of 4,000 jobs in March.
The ISM report also showed that the inventories index fell to 46.5 in April from 49.5 in March, indicating a faster rate of contraction.
The prices index also dipped to 50.0 in April from 54.5 in the previous month, suggesting that overall raw materials prices remained unchanged.
On the other hand, the report showed faster new orders and production growth, as the new orders index edged up to 52.3 in April from 51.4 in March and the production index climbed to 53.5 from 52.2.
Bradley J. Holcomb, chair of the ISM Manufacturing Business Survey Committee, said, "Comments from the panel indicate a range of strong/steady growth, to flat/declining volumes, depending upon the particular industry."
Friday morning, the ISM is scheduled to release a separate report on activity in the service sector in the month of April. Economists expect the index of activity in the sector to dip to 54.0 from 54.4.
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