The Institute for Supply Management (ISM) Manufacturing Purchasing Manager’s Index (PMI), released on the first business day of each month for the previous month, surveys purchasing and supply executives around the country on new orders, production, employment, and much more. Manufacturing supply executives are polled on their view of the current economic climate in relation to their respective businesses. The ISM Manufacturing PMI is a diffusion index – “they have properties of leading indicators and are convenient summary measures showing the prevailing direction of change and the scope of change.” A reading above 50 percent indicates that the manufacturing economy is generally expanding while a reading below 50 percent indicates that it is generally declining. The ISM Manufacturing PMI is considered a highly reliable gauge of current business conditions for the manufacturing sector.
This morning’s ISM Manufacturing PMI for May came in at 46.9%, down 0.2 percentage points from its April reading and worse than consensus. This is its seventh consecutive reading in contraction territory (< 50.0) for manufacturing, indicating a faster rate of contraction. Only two of the ten Index components of the PMI were up in May: Production and Employment Indexes, which were up 2.2 and 1.2 percentage points, respectively. These make up the Output and Consumption measurements, which remain positive, though Demand measurements have eased. The Supplier Deliveries Index is at its lowest level since March 2009. Only one of the six largest manufacturing industries registered growth in May, which was transportation equipment. Manufacturers remain split on future growth optimism as near-term demand declines.
Here’s an excerpt from the latest survey:
“Price instability remains and future demand is uncertain as companies continue to work down overdue deliveries and backlogs. Seventy-six percent of manufacturing gross domestic product (GDP) is contracting, up from 73 percent in April. A larger number of industries contracted strongly, as the proportion of manufacturing GDP registering a composite PMI® calculation at or below 45 percent — a good barometer of overall manufacturing weakness — increasing to 31 percent in May, compared to 12 percent in April. May performance was clearly weaker compared to April…” –Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee