• The ISM manufacturing index was unchanged at 48.6 in April, for its third consecutive month below 50
• The weakness in the new orders sub-index and the last couple of durable goods reports suggests that production will slow going forward
• The employment index dropped by nearly 4 points, and is decidedly below 50, which does not bode well for tomorrow's nonfarm payrolls report for April

The ISM manufacturing index fared a little better than expected in April, coming in flat at 48.6. However, the details of the report were still pretty weak, and point to further softness in the manufacturing sector going forward.

The production sub-index rose from 48.7 to 49.1 in April, but that was really it for good news as far as the major categories go. The new orders component remained unchanged at 46.5, and continues to sit at its lowest level since October 2001. Coupled with a couple of months of negative new orders of durable goods, it looks like demand for manufactured products is fading, so we'll likely see a pull-back in production going forward. The employment sub-index, which was probably the most closely watched with the April nonfarm payrolls report due tomorrow, fell from 49.2 to 45.4, which is decidedly below 50, and is its lowest level since May 2003.

Overall, the most important take-away is that the ISM manufacturing index remains below 50 for the third consecutive month, indicating a contraction in that sector. However, we may not see the super-low levels in the ISM that we've seen in past recessions, when the ISM manufacturing index generally falls into the low 40s. The reason is that thanks to the depreciation in the U.S. dollar, foreign demand will likely keep the business sector from entirely falling apart, as exports continue to grow. However, the manufacturing sector certainly won't be adding to economic growth either in the near-term.

Jacqui Douglas
Economics Strategist
TD Securities