WASHINGTON: US manufacturing pulled off a three-year low in April as new orders improved slightly and employment rebounded, but activity remained depressed amid higher borrowing costs and tight credit, which have raised the risk of a recession this year.

The Institute for Supply Management (ISM) said on Monday that its manufacturing PMI rose to 47.1 last month from 46.3 in March, which was the lowest reading since May 2020. Economists polled by Reuters had forecast the index climbing to 46.8.

It was the sixth straight month that the PMI remained below the 50 threshold, which indicates contraction in manufacturing. The sector, which accounts for 11.3% of the economy, is being weighed down by the Federal Reserve’s fastest interest rate hiking campaign since the 1980s.

Banks have also tightened lending following the recent financial market turmoil, while spending is shifting away from goods, which are typically bought on credit, to services.

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Businesses are cutting back on restocking in anticipation of weaker demand later this year. The government reported last week that private inventory investment fell in the first quarter for the first time since the third quarter of 2021. Business spending on equipment contracted for a second straight quarter, helping to restrain economic growth to a 1.1% pace last quarter.

The ISM survey’s forward-looking new orders sub-index rose to 45.7 last month from 44.3 in March. Even though demand remained weak, inflation at the factory gate picked up. The survey’s measure of prices paid by manufacturers rebounded to 53.2, the highest reading since last July, from 49.2 in March.

That aligns with government data last Friday showing wages and salaries in the manufacturing industry growing solidly in the first quarter.

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Though inflation is subsiding, underlying price pressures remain too strong to be consistent with the Fed’s 2% target, much of it attributed to labor market tightness.

The survey’s gauge of factory employment rebounded to 50.2 last month from 46.9 in March. Manufacturing payrolls in the government’s closely watched employment report have essentially stalled, posting small declines in February and March.