By Chad Moutray: Chief Economist at National Association of Manufacturers
The Institute for Supply Management’s (ISM) Manufacturing Purchasing Managers’ Index reported that growth in activity remained essentially the same in May. The composite index edged marginally higher, up from 54.8 in April to 54.9 in May. On the reassuring front, it was the ninth consecutive monthly expansion in manufacturing activity in the United States, with the sector showing signs of progress after two years of notable challenges. The sample comments tend to echo those improvements, citing better economic conditions, a favorable outlook and increased difficulties in finding labor. At the same time, the headline index has drifted lower since February (57.7), and respondents continue to note some lingering headwinds and increased pricing pressures. The ISM report mostly mirrors other sentiment surveys, which have observed some pullbacks from multiyear highs post-election, even as they remain mostly encouraging.
Digging into the underlying data, activity was mixed. Both new orders (up from 57.5 to 59.5) and employment (up from 52.0 to 53.5) grew at a faster pace in May, with relatively strong demand in the sector. In contrast, production (down from 58.6 to 57.1) and exports (down from 59.5 to 57.5) both eased for the month, even as they remained promising. Supplier deliveries (down from 55.1 to 53.1) and imports (down from 55.5 to 53.5) also decelerated in May, growing modestly.
Prices for raw materials continued to increase strongly (down from 68.5 to 60.5), but that measure has slowed since March’s pace (70.5), which was the quickest rate since May 2011. Meanwhile, inventories expanded in May for the third time in the past four months (up from 51.0 to 51.5). With stockpiles quite depleted from declines over the past few years, the recent pickup in demand should necessitate strong growth in production moving forward.