KEY DATA:  ISM (Manufacturing): -4 points; Orders: -3.7 points; Employment: -4.5 points/ Construction: +0.2%; Private Residential: +1.7%; Private Nonresidential: -0.9%; Public: -1.5%

IN A NUTSHELL: “While manufacturing activity remained solid, it eased up a touch in April.”

WHAT IT MEANS: The manufacturing sector continues to ramp up, as demand is strong.  But there was somewhat of an easing in the rate of activity in April.  The Institute or Supply Management’s Manufacturing index fell, and the details mirrored the topline number.  Orders, production, and employment, though extremely solid, expanded at a slower pace than in March.  Nevertheless, backlogs grew at an even faster pace than their already rapid rise, and inventories fell, implying that production should accelerate in the months to come.

Construction spending picked up in March, especially in the private sector.  Government activity was down for the third consecutive month.  Infrastructure, what’s that? The driver of private activity was residential building, which continues to boom along.  However, private, nonresidential construction spending declined, as most components were off from their February levels.  

IMPLICATIONS: The first quarter GDP number points out how much the economy soared early this year.  The ISM index is a diffusion index and sometimes a drop in the number doesn’t reflect a real slowdown.  If you are running nearly full out, it is hard to increase output and that is likely what is going on.  In addition, chip issues and supply chain backlogs may be more of an issue than demand.  There was one thing that is of concern in the manufacturing numbers: The cost of inputs is skyrocketing. Eighty percent of the respondents indicated they had to pay more for materials.  With demand high and rising, firms have some pricing power, so inflation is likely to accelerate for manufactured goods.  When it comes to the state of the manufacturing sector, there is little reason to think conditions are softening.  Similarly, the modest rise in overall construction spending was driven by weak government spending and one thing we know, the government has not withdrawn its support of the economy.  Instead, it continues to be the chief source of funding for businesses and households.  Thus, investors will likely look past today’s numbers.