ISM Report on Business: Manufacturing PMI at 48.7% in May

Economic activity in the manufacturing sector contracted in May for the second consecutive month and the 18th time in the last 19 months, according to the latest Manufacturing ISM Report On Business.


The report was issued by Timothy R. Fiore, chair of the Institute for Supply Management (ISM) Manufacturing Business Survey Committee.


“The Manufacturing PMI registered 48.7% in May, down 0.5 percentage points from the 49.2% recorded in April. The overall economy continued in expansion for the 49th month after one month of contraction in April 2020. (A Manufacturing PMI above 42.5%, over a period of time, generally indicates an expansion of the overall economy.) The new orders index remained in contraction territory, registering 45.4%, 3.7 percentage points lower than the 49.1% recorded in April,” Fiore said. “The May reading of the production index (50.2%) is 1.1 percentage points lower than April’s figure of 51.3%. The prices index registered 57%, down 3.9 percentage points compared to the reading of 60.9% in April. The backlog of orders index registered 42.4%, down 3 percentage points compared to the 45.4% recorded in April. The employment index registered 51.1%, up 2.5 percentage points from April’s figure of 48.6%.”


“The supplier deliveries index figure of 48.9% equaled the reading recorded in April. (Supplier deliveries is the only ISM Report On Business 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 47.9%, down 0.3 percentage point compared to April’s reading of 48.2%,” Fiore said. “The new export orders index reading of 50.6% is 1.9 percentage points higher than the 48.7% registered in April. The imports index continued in expansion territory, registering 51.1%, 0.8 percentage point lower than the 51.9% reported in April. During its current five-month streak in expansion, the imports index has averaged 51.8%.”


“U.S. manufacturing activity continued in contraction after growing in March, the first expansion for the sector since September 2022. Demand was soft again, output was stable, and inputs stayed accommodative,” Fiore said. “Demand slowing was reflected by the (1) new orders index dropping deeper into contraction, supported by additional comments regarding ‘softening;’ (2) new export orders index edging back into marginal expansion; (3) backlog of orders index regressing lower into contraction territory; and (4) customers’ inventories index at the ‘just right’ level, neutral for future production. Output (measured by the production and employment indexes) advanced compared to April, with a combined 1.4-percentage point upward impact on the Manufacturing PMI calculation. Panelists’ companies maintained production levels month over month, and headcount reductions continued in May. Inputs — defined as supplier deliveries, inventories, prices and imports — continued to accommodate future demand growth. The supplier deliveries index was stable, and the inventories index was marginally lower compared to April. The prices index eased but remained in strong expansion (or ‘increasing’) territory, as most commodity driven costs continue to climb but at weaker rates. Imports continued to grow, at a slower rate in May.”


“Demand remains elusive as companies demonstrate an unwillingness to invest due to current monetary policy and other conditions. These investments include supplier order commitments, inventory building and capital expenditures. Production execution continued to expand but was essentially flat compared to the previous month,” Fiore said. “Suppliers continue to have capacity, with lead times improving and shortages not as severe. 55% of manufacturing gross domestic product (GDP) contracted in May, up from 34% in April. More importantly, the share of sector GDP registering a composite PMI calculation at or below 45% — a good barometer of overall manufacturing weakness — was 4% in May, the same as in April, but an indication of better health than the 27% recorded in January. Among the top six industries by contribution to manufacturing GDP in May, none had a PMI at or below 45%.”


The seven manufacturing industries reporting growth in May — in order — are:

  • Printing and related support activities
  • Petroleum and coal products
  • Paper products
  • Textile mills
  • Primary metals
  • Fabricated metal products
  • Chemical products


The seven industries reporting contraction in May — in the following order — are:

  • Wood products
  • Plastics and rubber products
  • Machinery
  • Computer and electronic products
  • Furniture and related products
  • Transportation equipment
  • Food, beverage and tobacco products

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