April's ISM index at 40.1 suggests we have come off the bottom but are still in recession in the second quarter as the manufacturing sector faces the challenges of both cyclical slowdown and secular change (autos). Orders, production and employment components were up but remained weak. Export orders rose. Prices signal no inflation.

Weak ISM: Off the Bottom but Continued Recession

• Headline ISM manufacturing rose to 40.1 as there were improvements in key orders, production and employment components. The manufacturing recession continues but is intertwined with structural change in the industry.

• Industrial production is one of four core coincident indicators of the economy and the ISM index suggests continued weak production. Growth is not expected to return anytime soon.

Employment Remained Weak: Export Orders off the Bottom

• Employment remained below breakeven 50 and so we expect further job losses in manufacturing. Manufacturers will continue to cut jobs as a reflection of the current recession and lower growth expectations for future consumer demand.

• Export orders were up from the bottom. This would suggest that improvement in exports themselves may be ahead. For the year ahead we expect exports to be a small drag on growth.