Manufacturing Sector Expanded in May: ISM

Economic activity in the manufacturing sector expanded in May for the fifth consecutive month, the Institute for Supply Management reports.

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.

The only industry reporting contraction in May is Wood Products.