The Institute for Supply Management (ISM) manufacturing purchasing managers index (PMI) came in at 54.0 in May, marking the fastest expansion for the index since May 2022. The latest reading was higher than the 53.3 forecast and is the index's fifth straight month in expansion territory.
Here is an excerpt from the latest report:
Spence continues, “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.
“In May, 25 percent of the comments were positive and 69 percent negative, with a 1-to-2.7 ratio of positive to negative sentiment. Among comments, the Iran war was mentioned in 42 percent and tariffs in 18 percent; 57 percent 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 percent indicated that managing head counts remains the norm at their companies, while 50 percent are hiring.
“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 percent). 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 percent of the sector’s gross domestic product (GDP) contracted in May, compared to 19 percent in April, and the percentage of manufacturing GDP in strong contraction (defined as a composite PMI® of 45 percent or lower) was also 2 percent, the same as in April. The share of sector GDP with a PMI® at or below 45 percent is a good metric to gauge overall manufacturing weakness. All of the six largest manufacturing industries expanded in May, in the following order: Computer & Electronic Products; Machinery; Transportation Equipment; Petroleum & Coal Products; Chemical Products; and Food, Beverage & Tobacco Products. In May, all indexes headed in a direction that suggests sustained growth,” says Spence.
