Inventory growth drives US manufacturing PMI to four-year high, economists warn future is not optimistic.

The latest data shows that the US manufacturing sector experienced significant expansion in April, but the growth momentum mainly came from businesses stockpiling ahead of rising costs and supply chain uncertainties, with underlying economic concerns simultaneously emerging. According to data released by S&P Global, the April Purchasing Managers' Index (PMI) for the US manufacturing sector rose to 54.5, a noticeable increase from March's 52.3, marking the highest level since May 2022 and indicating sustained expansion in manufacturing activity. The report shows that new orders and output both recorded their fastest growth in four years, driving a significant increase in business purchasing activity. However, this growth is not entirely due to improvements in end-demand, but rather from concerns about future price increases and supply shortages, leading to accelerated inventory accumulation. Against the backdrop of rising raw material prices and disruptions in the supply chain, businesses are increasing purchases and inventory to "get ahead", boosting short-term production and order strength. Finished goods inventories also saw their first growth in three months in April. However, demand structures remain differentiated. Domestic demand remains strong, while export orders have continued to decline for the 11th consecutive month. Businesses commonly report that tariff policies and conflicts in the Middle East are putting pressure on international sales. Supply-side pressures continue to be evident. Due to shortages of raw materials, the extent to which suppliers extend delivery times is at its highest since August 2022. Despite significant increases in business purchases, inventory growth remains constrained. At the same time, input costs and factory prices are both accelerating, with inflation levels reaching nearly a 10-month high. In order to maintain profit margins, businesses are raising prices, further driving overall price pressures. Despite strong production and order growth, there are signs of a cooling labor market. Data shows that manufacturing employment saw its first decline in 9 months in April, with the largest drop in a year and a half. Businesses state that in the context of rising costs and supply uncertainties, they are more inclined to control expenses by not replacing departing employees rather than expanding hiring. Meanwhile, backlogs of orders continue to increase, reflecting constraints on business capacity due to labor shortages and supply chain disruptions. Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, points out that the strong performance of manufacturing in April is "not as optimistic as it may appear on the surface." He believes that the current growth is mainly driven by businesses stockpiling, and this short-term boost may gradually weaken in the coming months as supply chain bottlenecks and cost pressures continue to accumulate. Additionally, despite businesses' improved confidence in the production outlook for the next year reaching the highest level since February 2025, some of the optimism may be from the better-than-expected performance in April orders. Once the inventory replenishment cycle ends, there may be risks of a demand downturn.