Economic activity in the manufacturing sector expanded in May for the fifth consecutive month, say the nation’s supply executives in the latest ISM Manufacturing PMI Report. The report was issued by Susan Spence, chair of the Institute for Supply Management (ISM) manufacturing business survey committee.
“The Manufacturing PMI registered 54 % in May, 1.3 percentage points higher than in April and its highest reading since May 2022 (55.9 %). The overall economy continued in expansion for the 19th month in a row. (A Manufacturing PMI above 47.5 %, over a period of time, generally indicates an expansion of the overall economy.) The New Orders Index expanded for the fifth consecutive month after four straight readings in contraction, registering 56.8 %, up 2.7 percentage points compared to April’s figure of 54.1 %. The May reading of the Production Index (54.3 %) is 0.9 percentage point higher than April’s reading of 53.4 %. The Prices Index remained in expansion (or ‘increasing’ territory), registering 82.1 %, a 2.5- percentage point decrease from April’s reading of 84.6 %. The Backlog of Orders Index registered 52.2 %, up 0.8 percentage point compared to the 51.4 % recorded in April. The Employment Index registered 48.6 %, up 2.2 percentage points from April’s figure of 46.4 %,” Spence said.
“The Supplier Deliveries Index indicated slowing performance for the sixth month in a row after one month in ‘faster’ territory. The reading of 60.6 % repeated its April figure after the index increased in each of the previous five months. (Supplier Deliveries is the only ISM PMI Reports index that is inversed; a reading of above 50 % indicates slower deliveries, which is typical as the economy improves and customer demand increases.) The Inventories Index registered 49.9 %, up 0.9 percentage point compared to April’s reading of 49 %. The Customers’ Inventories Index reading of 42.7 % is 3.6 percentage points higher as compared to the 39.1 % recorded in April,” Spence said. “The New Export Orders Index returned to expansion territory with a reading of 50.6 %, 2.7 percentage points higher than the 47.9 % registered in April. The Imports Index registered 53 %, 2.7 percentage points higher than April’s reading of 50.3 %.”
Spence added, “In May, U.S. manufacturing activity remained in expansion territory, growing at a faster pace compared to the month before. Of the five subindexes that make up the PMI, the New Orders index indicated faster growth compared to the previous month, the Supplier Deliveries index stayed the same, the Production Index grew at a faster rate, and the Employment and Inventories indexes remained in contraction, though both improved.
Spence continued, “In May, 25 % of the comments were positive and 69 % negative, with a 1-to-2.7 ratio of positive to negative sentiment. Among comments, the Iran war was mentioned in 42 % and tariffs in 18 %; 57 % of the panelists mentioned pricing volatility as an issue for their companies. Three of four demand indicators (the New Orders, Backlog of Orders, and New Export Orders indexes) were in expansion. The Customers’ Inventories Index remains in ‘too low’ territory, contracting at a slower rate. A ‘too low’ status for the Customers’ Inventories Index is usually considered positive for future production. Regarding output, the Production Index is in expansion for the seventh month in a row, and the Employment Index increased by 2.2 percentage points but remained in contraction. Among panelists, 50 % indicated that managing head counts remains the norm at their companies, while 50 % are hiring.”
Spence concluded, “Finally, inputs (defined as supplier deliveries, inventories, prices and imports) were mostly improved month over month. With the same reading as in April, the Supplier Deliveries Index stayed at its highest level since May 2022 (65.7 %). The Inventories Index contracted at a slower rate, the Prices Index declined by 2.5 percentage points and the Imports Index grew at a faster rate. Looking at the manufacturing economy, only 2 % of the sector’s gross domestic product (GDP) contracted in May, compared to 19 % in April, and the percentage of manufacturing GDP in strong contraction (defined as a composite PMI of 45 % or lower) was also 2 %, the same as in April. The share of sector GDP with a PMI at or below 45 % is a good metric to gauge overall manufacturing weakness. All of the six largest manufacturing industries expanded in May, in the following order: computer and electronic products; machinery; transportation equipment; petroleum and coal products; chemical products; and food, beverage and tobacco products. In May, all indexes headed in a direction that suggests sustained growth.”
The 16 manufacturing industries reporting growth in May — listed in order — are: printing and related support activities; textile mills; nonmetallic mineral products; paper products; electrical equipment, appliances and components; plastics and rubber products; primary metals; miscellaneous manufacturing; computer and electronic products; furniture and related products; machinery; transportation equipment; petroleum and coal products; chemical products; fabricated metal products; and food, beverage and tobacco products. The only industry reporting contraction in May is wood products.
