(Bloomberg). — The U.S. Manufacturing Activity Index unexpectedly fell in April to its lowest level since 2020, as the growth of orders, production, and employment slowed.

The Institute for Supply Management’s gauge of factory activity fell to 55.4 last month from 57.1, according to data released Monday. Readings above 50 indicate expansion. It was lower than the median forecast of 57.6 in an economist survey by Bloomberg.

Recent data show signs of a softening in merchandise demand. Both production and new orders fell to the lowest level since May 2020. However, they remained well above what indicates growth.

The report showed that the supplier delivery gauge saw a rise in month-end readings, indicating longer lead times due to delays and transportation bottlenecks.

The deliveries index climbed to a five-month high as producers contend with restrictive Covid-19 measures in China and Russia’s war in Ukraine that are delaying shipments.

“The U.S. manufacturing sector remains in a demand-driven, supply chain-constrained environment,” Timothy Fiore, chair of ISM’s Manufacturing Business Survey Committee, said in a statement. “In April, progress slowed in solving labor shortage problems at all tiers of the supply chain.”

The manufacturer’s price index has slightly risen, but it is still very high.

In the meantime, the Employment Gauge fell to a 7-month low of 50.9. It suggests that April’s hiring pace was slower. The government’s monthly jobs report, out Friday, is projected to show manufacturers added more than 30,000 jobs last month.

According to the headline gauge, consumer spending is changing. Last week’s data showed that inflation-adjusted purchasing rose in March due to outlays for services, not goods.

ISM’s data also pointed to a slight improvement in the mismatch between supply and demand. The backlog growth slowed, while a gauge measuring customer inventories reached its highest level since December 2020. However, it remains historically low.

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