Economic activity in the manufacturing sector contracted in May for the third consecutive month, following a two-month expansion preceded by 26 straight months of contraction, say the nation’s supply executives in the latest Manufacturing ISM Report On Business.
The report was issued by Susan Spence, MBA, Chair of the Institute for Supply Management (ISM) Manufacturing Business Survey Committee:
“The Manufacturing PMI registered 48.5 percent in May, 0.2 percentage point lower compared to the 48.7 percent recorded in April. The overall economy continued in expansion for the 61st month after one month of contraction in April 2020. (A Manufacturing PMI above 42.3 percent, over a period of time, generally indicates an expansion of the overall economy.)
“The New Orders Index contracted for the fourth month in a row following a three-month period of expansion; the figure of 47.6 percent is 0.4 percentage point higher than the 47.2 percent recorded in April. The May reading of the Production Index (45.4 percent) is 1.4 percentage points higher than April’s figure of 44 percent.
“The index continued in contraction in March for the third straight month after two months of expansion preceded by eight months of contraction. The Prices Index remained in expansion (or increasing) territory, registering 69.4 percent, down 0.4 percentage point compared to the reading of 69.8 percent in April. The Backlog of Orders Index registered 47.1 percent, up 3.4 percentage points compared to the 43.7 percent recorded in April. The Employment Index registered 46.8 percent, up 0.3 percentage point from April’s figure of 46.5 percent.
“The Supplier Deliveries Index indicated a continued slowing of deliveries, registering 56.1 percent, 0.9 percentage point higher than the 55.2 percent recorded in April. (Supplier Deliveries is the only ISM Report On Business index that is inversed; a reading of above 50 percent indicates slower deliveries, which is typical as the economy improves and customer demand increases.)
“The Inventories Index registered 46.7 percent, down 4.1 percentage points compared to April’s reading of 50.8 percent.
“The New Export Orders Index reading of 40.1 percent is 3 percentage points lower than the reading of 43.1 percent registered in April. The Imports Index plunged into extreme contraction in May, registering 39.9 percent, 7.2 percentage points lower than April’s reading of 47.1 percent.”
Spence continues, “In May, U.S. manufacturing activity slipped further into contraction after expanding only marginally in February. Contraction in most of the indexes that measure demand and output have slowed, while inputs have started to weaken:
“Demand indicators were mixed, with the New Orders and Backlog of Orders indexes contracting at slower rates, while the Customers’ Inventories and New Export Orders indexes contracted more strongly. However, a ‘too low’ status for the Customers’ Inventories Index is usually considered positive for future production.
“Regarding output, the Production Index increased from an alarmingly low reading the previous month, but factory output continued to contract in May, indicating that panelists’ companies are still revising production plans downward amid economic uncertainty.
“The Employment Index ticked up for a second consecutive month but remained in contraction, as head-count reductions continued. Companies generally opted for layoffs because they are quicker to implement than attrition.
“Finally, inputs are defined as supplier deliveries, inventories, prices and imports. The Inventories Index, as expected, entered contraction territory after expanding as companies completed pull-forward activity ahead of tariffs, while the Supplier Deliveries Index indicated continuing slow performance, reflecting ongoing delays in clearing goods through ports of entry.
“Tariffs-induced prices growth slowed slightly, while the Imports Index contracted significantly, down 7.2 percentage points compared to April.
“Looking at the manufacturing economy, 57 percent of the sector’s gross domestic product (GDP) contracted in May, up from 41 percent in April. The share of manufacturing GDP registering a composite PMI calculation at or below 45 percent is a good metric to gauge overall manufacturing weakness; in May, this figure was 5 percent, a 13-percentage point decrease compared to the 18 percent in April,” says Spence.
The seven industries reporting contraction in May, in order, are: Paper Products; Wood Products; Printing & Related Support Activities; Food, Beverage & Tobacco Products; Transportation Equipment; Chemical Products; and Primary Metals.
“Uncertainty due to the recent tariffs continue to weigh on profitability and service. An unresolved (trade deal with) China will result in empty shelves at retail for many do-it-yourself and professional goods.”
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