| Consensus | Consensus Range | Actual | Previous | |
|---|---|---|---|---|
| Index | 47.0 | 46.5 to 48.2 | 46.9 | 47.1 |
Highlights
US manufacturing activity was in contraction territory for the seventh straight month in May as new orders contracted at a faster pace and the level of backlog orders slumped to a 14-year low amid growing uncertainty over the timing of recovery in demand later this year, data from the Institute for Supply Management released Thursday showed.
The ISM survey also indicated that nearly equal numbers of firms are increasing or shedding head counts amid mixed sentiment about when significant growth will return, as seen in the previous month.
The sector index compiled by the ISM, which shows general direction, fell 0.2 percentage point to 46.9 in May after rising 0.8 point to 47.1 in April, falling 1.4 points to 46.3 in March and edging up 0.3 point to 47.7 in February. The latest figure is just below the median economist forecast of 47.0.
Regarding the overall economy, this figure indicates a sixth month of contraction after a 30-month period of expansion. The ISM's manufacturing PMI reading above 48.7, over time, generally indicates an expansion of the overall economy.
The index has been on a gradual downtrend since June 2022. It remains the lowest since May 2020, when the index at 43.5 was recovering from a recent low of 41.8 the previous month during the first wave of the pandemic. The all-time low is 29.4 hit in May 1980.
"The May composite index reading reflects companies continuing to manage outputs to better match demand for the first half of 2023 and prepare for growth in the late summer/early fall period," Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, said in a statement."However, there is clearly more business uncertainty in May."
Fiore told reporters that some firms are concerned about a possible recession in 2024 but that he sticks to his recent outlook that surveyed manufacturing firms are operating in a 47 to 51 range in the index.
"Revenue numbers remain really strong," he said but added that new orders are down due to uncertainty."Right now, the future is very cloudy and a lot of that has to do with uncertainty about the overall economy." The economy is entering the last month of the first half of 2023 and conditions are still bumpy, Fiore said.
Some of the comments from respondents in the latest ISM survey showed that"there is a concern about recession in 2024," he said."That's the first time I have seen that kind of comments this year."
Companies are not committing themselves to making capital investment at this point, he said.
Among the five subindexes that directly factor into the manufacturing PMI, the new orders Index contracted for the ninth consecutive month, plunging 3.1 points to a four-month low of 42.6 in May after edging up 0.8 point to 45.7 in April and falling 2.7 points to 44.3 in March.
"Industrial and high-tech demands are pushing out, as a slowdown is clear," a company from the electrical equipment, appliances and components industry told the ISM survey.
The production index reading of 51.1 is a 2.2-percentage point increase from 48.9 in April, when it rose 1.1 points, indicating growth for the first time in six months.
The employment index rose 1.2 points to 51.4 in May after popping into expansion territory for the first time in four months in April at 50.2, up 3.3 points from 46.9 in March.
The delivery performance of suppliers to manufacturing organizations was faster for the eighth straight month. The supplier deliveries index at 43.5 percent is 1.1 points lower than 44.6 recorded in April. It remains the lowest since 43.2 in March 2009.
The inventories index fell 0.5 point to 45.8 in May from 46.3 in April, when it fell 1.2 points.
Among other subindexes, the customers' inventories index rose 0.1 point to 51.4 from 51.3 in April, persisting at the low end of 'too high' territory, a negative for future production. It remains the highest in more than six years since September 2016, when it registered 52.5. The all-time high is 56.0 hit in January 2001.
The prices index stood at 44.2 in May, down 9.0 points from 53.2 in April, when it rose 4.0 points from 49.2 in March."Price instability remains and future demand is uncertain as companies continue to work down overdue deliveries and backlogs," Fiore said, adding that the price outlook is uncertain.
"While inflation is easing on some discretionary goods, high food costs persist across most categories," said a firm from the food, beverage and tobacco products industry.
The backlog orders index slumped 5.6 points to 37.5 in May from 43.1 in April, dropping to a level not seen since the Great Recession (33.6 in February 2009).
The new export orders index edged up 0.2 point to 50.0 in May, just above contraction territory, after rising 2.2 points to 49.8 in April from 47.6 in March, backed by higher-than-expected performance in both Asia and Europe.
The manufacturing sector is in the sixth contracting phase in the past 20 years. Previously, the ISM manufacturing PMI posted contraction just before the pandemic hit the global economy, from August to December 2019 and from March to May 2020. The deepest slump in the past two decades was recorded from September 2008 until July 2009 (the bottom was 34.5 in December 2008) triggered by the US credit crisis.
The ISM survey also indicated that nearly equal numbers of firms are increasing or shedding head counts amid mixed sentiment about when significant growth will return, as seen in the previous month.
The sector index compiled by the ISM, which shows general direction, fell 0.2 percentage point to 46.9 in May after rising 0.8 point to 47.1 in April, falling 1.4 points to 46.3 in March and edging up 0.3 point to 47.7 in February. The latest figure is just below the median economist forecast of 47.0.
Regarding the overall economy, this figure indicates a sixth month of contraction after a 30-month period of expansion. The ISM's manufacturing PMI reading above 48.7, over time, generally indicates an expansion of the overall economy.
The index has been on a gradual downtrend since June 2022. It remains the lowest since May 2020, when the index at 43.5 was recovering from a recent low of 41.8 the previous month during the first wave of the pandemic. The all-time low is 29.4 hit in May 1980.
"The May composite index reading reflects companies continuing to manage outputs to better match demand for the first half of 2023 and prepare for growth in the late summer/early fall period," Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, said in a statement."However, there is clearly more business uncertainty in May."
Fiore told reporters that some firms are concerned about a possible recession in 2024 but that he sticks to his recent outlook that surveyed manufacturing firms are operating in a 47 to 51 range in the index.
"Revenue numbers remain really strong," he said but added that new orders are down due to uncertainty."Right now, the future is very cloudy and a lot of that has to do with uncertainty about the overall economy." The economy is entering the last month of the first half of 2023 and conditions are still bumpy, Fiore said.
Some of the comments from respondents in the latest ISM survey showed that"there is a concern about recession in 2024," he said."That's the first time I have seen that kind of comments this year."
Companies are not committing themselves to making capital investment at this point, he said.
Among the five subindexes that directly factor into the manufacturing PMI, the new orders Index contracted for the ninth consecutive month, plunging 3.1 points to a four-month low of 42.6 in May after edging up 0.8 point to 45.7 in April and falling 2.7 points to 44.3 in March.
"Industrial and high-tech demands are pushing out, as a slowdown is clear," a company from the electrical equipment, appliances and components industry told the ISM survey.
The production index reading of 51.1 is a 2.2-percentage point increase from 48.9 in April, when it rose 1.1 points, indicating growth for the first time in six months.
The employment index rose 1.2 points to 51.4 in May after popping into expansion territory for the first time in four months in April at 50.2, up 3.3 points from 46.9 in March.
The delivery performance of suppliers to manufacturing organizations was faster for the eighth straight month. The supplier deliveries index at 43.5 percent is 1.1 points lower than 44.6 recorded in April. It remains the lowest since 43.2 in March 2009.
The inventories index fell 0.5 point to 45.8 in May from 46.3 in April, when it fell 1.2 points.
Among other subindexes, the customers' inventories index rose 0.1 point to 51.4 from 51.3 in April, persisting at the low end of 'too high' territory, a negative for future production. It remains the highest in more than six years since September 2016, when it registered 52.5. The all-time high is 56.0 hit in January 2001.
The prices index stood at 44.2 in May, down 9.0 points from 53.2 in April, when it rose 4.0 points from 49.2 in March."Price instability remains and future demand is uncertain as companies continue to work down overdue deliveries and backlogs," Fiore said, adding that the price outlook is uncertain.
"While inflation is easing on some discretionary goods, high food costs persist across most categories," said a firm from the food, beverage and tobacco products industry.
The backlog orders index slumped 5.6 points to 37.5 in May from 43.1 in April, dropping to a level not seen since the Great Recession (33.6 in February 2009).
The new export orders index edged up 0.2 point to 50.0 in May, just above contraction territory, after rising 2.2 points to 49.8 in April from 47.6 in March, backed by higher-than-expected performance in both Asia and Europe.
The manufacturing sector is in the sixth contracting phase in the past 20 years. Previously, the ISM manufacturing PMI posted contraction just before the pandemic hit the global economy, from August to December 2019 and from March to May 2020. The deepest slump in the past two decades was recorded from September 2008 until July 2009 (the bottom was 34.5 in December 2008) triggered by the US credit crisis.
Market Consensus Before Announcement
The ISM manufacturing index has been in contraction the last six months. May's consensus is 47.0 versus April's 47.1.
Definition
The manufacturing composite index from the Institute for Supply Management is a diffusion index calculated from five of the eleven sub-components of a monthly survey of purchasing managers at roughly 300 manufacturing firms nationwide. The survey queries purchasing managers about the general direction (tracked in volumes) of production, new orders, order backlogs, their own inventories, customer inventories, employment, supplier deliveries, exports, and imports. Data on changes in input prices (prices paid) are also tracked. The five components of the composite index are new orders, production, employment, supplier deliveries, and inventories (their own, not customer inventories). The five components are equally weighted. The questions are qualitative rather than quantitative; that is, they ask about the general direction rather than the specific level of activity. Each question is adjusted into a diffusion index which is calculated by adding the percentage of positive responses to one-half of the unchanged responses.
Description
Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data such as the ISM manufacturing index, investors will know what the economic backdrop is for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly and causing potential inflationary pressures.
The ISM manufacturing data give a detailed look at the manufacturing sector, how busy it is and where things are headed. Since the manufacturing sector is a major source of cyclical variability in the economy, this report has a big influence on the markets. More than one of the ISM sub-indexes provide insight on commodity prices and clues regarding the potential for developing inflation. The Federal Reserve keeps a close watch on this report which helps it to determine the direction of interest rates when inflation signals are flashing in these data. As a result, the bond market is highly sensitive to this report.
Importance
The ISM manufacturing composite index indicates overall factory sector trends. The relevance of this indicator is enhanced by the fact that it is available very early in the month and is not subject to revision.
Interpretation
The bond market will rally (fall) when the ISM manufacturing index is weaker (stronger) than expected. Equity markets prefer lower interest rates and could rally with the bond market. However, a healthy manufacturing sector, indicated by rising ISM index levels, bodes well for corporate earnings and is bullish for the stock market.
The level of the ISM manufacturing index indicates whether manufacturing and the overall economy are growing or declining. Historically, readings of 50 percent or above are associated with an expanding manufacturing sector and healthy GDP growth overall. Readings below 50 indicate a contracting manufacturing sector but overall GDP growth is still positive until the ISM index falls below 42.5 (based on statistics through January 2011). Readings in between these two levels suggest that manufacturing is declining while GDP is still growing but only very slowly.
In addition to the ISM manufacturing composite index, the various sub-components contain useful information about manufacturing activity. The production component is related to industrial production, new orders to durable goods orders, employment to factory payrolls, prices to producer prices, export orders to merchandise trade exports and import orders to merchandise imports.
Vendor (supplier) deliveries are an important component of report. The more slowly orders are filled and delivered, the stronger the economic growth and the greater the potential for inflation. When orders are filled quickly, it means that producers don't have as many to fill.
The ISM manufacturing composite index and its sub-components can be subject to some monthly volatility, making the three-month average of the monthly levels more indicative of the trend.
The ISM manufacturing data give a detailed look at the manufacturing sector, how busy it is and where things are headed. Since the manufacturing sector is a major source of cyclical variability in the economy, this report has a big influence on the markets. More than one of the ISM sub-indexes provide insight on commodity prices and clues regarding the potential for developing inflation. The Federal Reserve keeps a close watch on this report which helps it to determine the direction of interest rates when inflation signals are flashing in these data. As a result, the bond market is highly sensitive to this report.
Importance
The ISM manufacturing composite index indicates overall factory sector trends. The relevance of this indicator is enhanced by the fact that it is available very early in the month and is not subject to revision.
Interpretation
The bond market will rally (fall) when the ISM manufacturing index is weaker (stronger) than expected. Equity markets prefer lower interest rates and could rally with the bond market. However, a healthy manufacturing sector, indicated by rising ISM index levels, bodes well for corporate earnings and is bullish for the stock market.
The level of the ISM manufacturing index indicates whether manufacturing and the overall economy are growing or declining. Historically, readings of 50 percent or above are associated with an expanding manufacturing sector and healthy GDP growth overall. Readings below 50 indicate a contracting manufacturing sector but overall GDP growth is still positive until the ISM index falls below 42.5 (based on statistics through January 2011). Readings in between these two levels suggest that manufacturing is declining while GDP is still growing but only very slowly.
In addition to the ISM manufacturing composite index, the various sub-components contain useful information about manufacturing activity. The production component is related to industrial production, new orders to durable goods orders, employment to factory payrolls, prices to producer prices, export orders to merchandise trade exports and import orders to merchandise imports.
Vendor (supplier) deliveries are an important component of report. The more slowly orders are filled and delivered, the stronger the economic growth and the greater the potential for inflation. When orders are filled quickly, it means that producers don't have as many to fill.
The ISM manufacturing composite index and its sub-components can be subject to some monthly volatility, making the three-month average of the monthly levels more indicative of the trend.
