Economic: ISM Reports May as Third Consecutive Month of Decline for the Manufacturing Sector

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As reported by the Institute of Supply Management, the manufacturing sector failed to grow in May for the third consecutive month. However, there are signs of life in manufacturing as both the New Orders Index and the Production Index rose above the 50 percent mark after each had seen two consecutive months of decline. There is also good news on the pricing front as the Prices Index declined 12 percentage points, leaving it just above the breakeven point. Order backlogs grew in May following 10 months of decline. These are all signs of encouragement that manufacturing is recovering from the decline due to the war.

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ISM's Backlog of Orders Index indicates that order backlogs increased in May. Manufacturing employment continued to decline in May as the index remained below the breakeven point (an index of 50 percent) for the 32nd consecutive month. ISM's Prices Index is above 50 percent as manufacturers experienced higher prices for the 15th consecutive month. New Export Orders grew in May for the 17th consecutive month. May's Imports Index grew for the seventh consecutive month.

Comments from purchasing and supply managers focus on the continued weakness in many sectors, pressure from natural gas prices, SARS concerns in Asia, and the impact of a declining dollar.

ISM's PMI rose to 49.4 percent in May, an increase of 4 percentage points when compared to 45.4 in April. ISM's New Orders Index rose 6.7 percentage points from 45.2 percent in April to 51.9 percent in May. ISM's Production Index rose 4.5 percentage points from 47 percent in April to 51.5 percent in May. The ISM Employment Index is at 43 percent for May, an increase of 1.6 percentage points when compared to the 41.4 percent reported in April.

New Orders

ISM's New Orders Index grew in May with a reading of 51.9 percent. The index is 6.7 percentage points higher than the 45.2 percent registered in April, reversing the trend of the previous two months. A New Orders Index above 51 percent, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders (in constant 1987 dollars). Industries reporting increases for the month of May are: Petroleum; Glass, Stone, & Aggregate; Chemicals; Fabricated Metals; Electronic Components & Equipment; Food; Transportation & Equipment; Instruments & Photographic Equipment; Rubber & Plastic Products; Primary Metals; and Printing & Publishing.

Production

ISM's Production Index is 51.5 percent in May, 4.5 percentage points higher than the 47 percent reported in April. This indicates a reversal of the decline seen in March and April. An index above 49.9 percent, over time, is generally consistent with an increase in the Federal Reserve Board's Industrial Production figures. Of the 20 industries reporting in May, the following registered growth: Petroleum; Glass, Stone, & Aggregate; Chemicals; Fabricated Metals; Electronic Components & Equipment; Printing & Publishing; Instruments & Photographic Equipment; Miscellaneous*; Food; and Transportation & Equipment.

Employment

ISM's Manufacturing Employment Index remained below 50 percent in May for the 32nd consecutive month. The index registered 43 percent in May compared to 41.4 percent in April, an increase of 1.6 percentage points. An Employment Index above 47.8 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment. The only industries reporting growth in employment during May are: Apparel and Food.

Supplier Deliveries

ISM's Supplier Deliveries Index indicates delivery performance is slower in May with a reading of 51.3 percent. This is an increase of 1.3 percentage points when compared to April's reading of 50 percent. A reading above 50 percent indicates slower deliveries. The eight industries reporting slower supplier deliveries in May are: Instruments & Photographic Equipment; Textiles; Glass, Stone, & Aggregate; Transportation & Equipment; Miscellaneous*; Chemicals; Industrial & Commercial Equipment & Computers; and Electronic Components & Equipment.

Inventories

The rate of liquidation of manufacturers' inventories decelerated in May as the Inventories Index registered 46.1 percent. This compares to 42.7 percent reported in April. The Inventories Index has been under 50 percent for 40 consecutive months. An Inventories Index greater than 42.1 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis' (BEA) figures on overall manufacturing inventories (in constant 1987 dollars). The five industries reporting higher inventories in May are: Paper; Electronic Components & Equipment; Food; Fabricated Metals; and Furniture.

Imports

Imports of materials by manufacturers grew during May as the Imports Index registered 52.2 percent. The index declined 2.3 percentage points when compared to April's index of 54.5 percent. The eight industries reporting growth in import activity for May are: Textiles; Instruments & Photographic Equipment; Paper; Fabricated Metals; Electronic Components & Equipment; Industrial & Commercial Equipment & Computers; Transportation & Equipment; and Chemicals.

In Short Supply

No commodities are reported in short supply.

Up in Price

Caustic Soda - 12th month; Chemicals - 5th month; Copper; Lumber; Natural Gas - 10th month; Plastic Resins - 4th month; and Resin - 5th month.

Down in Price

Corrugated - 3rd month; Diesel Fuel; Fuel Oil - 2nd month; Gasoline; Natural Gas - 2nd month; and Steel - 2nd month.