ISM: Manufacturing Steady, Continues Growth

Economic activity in the manufacturing sector expanded in May for the third consecutive month, while the overall economy grew for the 84th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business.

Economic activity in the manufacturing sector expanded in May for the third consecutive month, while the overall economy grew for the 84th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business.

Manufacturing expanded in May as the PMI registered 51.3 percent, an increase of 0.5 percentage point from the April reading of 50.8 percent, indicating growth in manufacturing for the third consecutive month, following five consecutive months of contraction in manufacturing. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management Manufacturing Business Survey Committee states, “The past relationship between the PMI and the overall economy indicates that the average PMI for January through May (50.3 percent) corresponds to a 2.2 percent increase in real gross domestic product (GDP) on an annualized basis. In addition, if the PMI for May (51.3 percent) is annualized, it corresponds to a 2.6 percent increase in real GDP annually.”

A PMI above 43.2 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the May PMI indicates growth for the 84th consecutive month in the overall economy, while indicating growth in the manufacturing sector for the third consecutive month.

Orders, Production and Inventory

ISM’s New Orders Index registered 55.7 percent in May, which is a decrease of 0.1 percentage point when compared to the 55.8 percent reported for April, indicating growth in new orders for the fifth consecutive month. A New Orders Index above 52.2 percent, over time, is generally consistent with an increase in the Census Bureau’s series on manufacturing orders (in constant 2000 dollars).

ISM’s Production Index registered 52.6 percent in May, which is a decrease of 1.6 percentage points when compared to the 54.2 percent reported for April, indicating growth in production in May for the fifth consecutive month. An index above 51.3 percent, over time, is generally consistent with an increase in the Federal Reserve Board’s Industrial Production figures.

The Inventories Index registered 45 percent in May, which is a decrease of 0.5 percentage point when compared to the 45.5 percent reported for April, indicating raw materials inventories are contracting in May for the 11th consecutive month at a faster rate than in April. An Inventories Index greater than 42.8 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).

ISM’s Backlog of Orders Index registered 47 percent in May, a decrease of 3.5 percentage points when compared to the April reading of 50.5 percent, indicating contraction in order backlogs. Of the 85 percent of respondents who reported their backlog of orders, 17 percent reported greater backlogs, 23 percent reported smaller backlogs, and 60 percent reported no change from April.

Exports, Imports and Prices

ISM’s New Export Orders Index registered 52.5 percent in May, the same reading as in April. This month’s reading indicates growth in new export orders for the third consecutive month.

ISM’s Imports Index registered 50 percent in May, the same reading as in April, indicating that imports in May are unchanged from April.

The ISM Prices Index registered 63.5 percent in May, which is an increase of 4.5 percentage points when compared to the 59 percent reported for April, indicating an increase in raw materials for the third consecutive month. In May, 34 percent of respondents reported paying higher prices, 7 percent reported paying lower prices, and 59 percent of supply executives reported paying the same prices as in April. A Prices Index above 52.4 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Producer Price Index for Intermediate Materials.

Employment

ISM’s Employment Index registered 49.2 percent in May, the same reading as reported for April, indicating contraction in employment for the sixth consecutive month. An Employment Index above 50.6 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

The monthly Manufacturing ISM Report on Business is based on the survey results of approximately 350 professionals across 18 different industry sectors. The report is released on the first business day of each month and features the PMI Index as its key measure. For more information on the Institute for Supply Management, visit www.ism.ws.

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