2018.05.0200:48:00UTC+00U.S. Factory Activity Slows Further in April

U.S. factory activity decelerated for the second consecutive month in April, with manufacturers concerned about increasing commodity prices in the aftermath of the Trump administration's tariffs on steel and aluminum imports.

The Institute for Supply Management's closely watched U.S. manufacturing gauge dropped two points in April to 57.3, the second straight fall since the index notched an almost 14-year peak in February. Readings above 50 indicate growth, so the index remained in growth territory this spring.

The survey's prices paid index increased 1.2 points to 79.3, the highest reading since April 2011. Last month, price increases occurred across 17 of 18 industry sectors. Machinery manufacturers said tariffs had increased prices for steel and other materials. They reported that “a lot of suppliers are asking for increases, and the team is battling those requests.”

Rising raw material costs are the latest indication that inflation pressures are building and could attract the attention of Federal Reserve officials who began a two-day policy meeting on Tuesday. Data on Monday showed a jump in annual inflation rates in March. In addition, wages grew at their quickest pace in 11 years in the first quarter.

The ISM's measure of factory employment dropped in April. Transport equipment manufacturers said while business was robust, capacity constraints were a headache. They described labor as remaining “tight and getting tighter.”

Despite the second consecutive monthly decline in the ISM index, manufacturing remains supported by a strengthening global economy as well as a weakening U.S. dollar, which is boosting the competitiveness of American-made goods on the global market.