The ISM manufacturing survey results show a moderation in the pace of economic activity. The composite index moved down slightly to 60.4 in April from 61.2 in March. Indexes tracking new orders (61.7 vs. 63.3 in March), production (63.8 vs. 69.0 in March), supplier deliveries (60.2 vs. 63.1 in March) and employment (62.7 vs. 63.0 in March) declined during April. As each of these indexes is holding above the 50.0 mark (readings above 50 denote an expansion in activity and those under 50 signify a contraction in activity), the latest numbers suggest a slowing in the pace of factory activity not a contraction. The index measuring inventories rose to 53.6 from 47.4 in March, after two months of below-50 readings. The fact that the index tracking new orders fell and that of inventories rose is somewhat troubling. The new high for the price index (85.5) reflects rising commodity prices. Survey respondents noted that higher commodity prices are putting pressures on margins. The 6-point increase of the exports is noteworthy and bodes positively for overall exports of the U.S economy. ISM manufacturing survey results will be watched closely in the month ahead for signs of a turnaround given expectations of a stronger growth of real GDP in the second quarter vs. the first quarter gain of only 1.8%.
Senior Loan Officer Survey Points to Noteworthy Improvements in Lending and Borrowing
Bankers were more willing to lend to large, medium, and small firms and households in the latest survey and fewer bankers reported increasing spreads. The tone of the entire survey suggests improving borrowing and lending conditions but actual data of loans on the books of banks are yet to show this improvement in credit conditions. Fewer banks reported tightening of underwriting standards for business loans (see Chart 2) in the April survey compared with the prior survey.
More importantly, there was an increase in demand for loans from large, medium, and small firms (see Chart 3).
Also, demand for commercial real estate loans increased and underwriting standards loans were more favorable in the latest survey compared with the January survey results.
With regard to households demand for mortgage loans was weak, while willingness to lend to consumers showed an improvement.
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