ISM: Manufacturing activity continues decline in May

Economic activity in the manufacturing sector fell in May from April, according to the Institute for Supply Management (ISM). The activity has contracted for two consecutive months following a rise in March.

On Monday (June 3), ISM released the Manufacturing ISM Report on Business for May, which shows that the purchasing managers’ index (PMI) decreased by 0.5 percentage points to 48.7% in May from April. A reading below 50% indicates economic activity in the manufacturing sector is contracting.

According to the May report, new orders and backlogs declined. Production and employment increased. Supplier deliveries were faster. Raw materials inventories declined. Customers’ inventories were too low. Prices rose. Exports and imports increased.

“U.S. manufacturing activity continued in contraction after growing in March, the first expansion for the sector since September 2022,” said Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee. “Demand was soft again, output was stable and inputs stayed accommodative.

“Demand remains elusive as companies demonstrate an unwillingness to invest due to current monetary policy and other conditions,” Fiore added. “These investments include supplier order commitments, inventory building and capital expenditures. Production execution continued to expand but was essentially flat compared to the previous month. Suppliers continue to have capacity, with lead times improving and shortages not as severe.”

The following seven manufacturing industries reported growth in May: Printing and related support activities, petroleum and coal products, paper products, textile mills, primary metals, fabricated metal products and chemical products.

According to the May report, respondents reported mixed demand. Several noted business was slowing, but others said it was stable or growing.

In the chemical products industry, a respondent said, “Seems like a minor slowdown is happening. With less spending in the economy, less pressure on us for our products.” A respondent in the transportation equipment industry said, “Business conditions are pacing with budget and forecast for 2024. Certain markets are soft, but others are ahead of forecast, allowing us to maintain overall. Concerns with the economy continue to drive business decisions.”

In the food, beverage and tobacco products industry, a respondent said, “Volume continues to be challenging, mostly due to inflationary impacts.” A respondent in the computer and electronic products industry said, “Orders have started to rebound, but inventory levels remain high enough for no impact on our supplier orders. It will take a few more strong months before supplier orders are reactivated or increased.”

In the machinery industry, a respondent said, “Backlog is dwindling as we get caught up on orders; new orders are not coming in as robust as the backlog is going down. Inflation continues to be a problem with the pricing of raw materials and interest rates. We expect a flat rest of calendar year 2024, especially given that it’s a presidential election year.” In the fabricated metal products industry, a respondent said, “Export shipments continue to be soft as capital equipment sales remain lower than forecast. As a result, production is also trending lower, and inventory that is not able to be pushed out is growing.”

A respondent in the electrical equipment, appliances and components industry said, “Demand has been strong the first few months – ahead of budget, consistent with last year. Bookings are starting to slow down for May and June. We are monitoring this data closely to determine if it is a sign of decline or our typical cyclical demand.” In the furniture and related products industry, a respondent said, “Business is picking up, with incoming bookings increasing.”

In the petroleum and coal products industry, a respondent reported, “Overall softening of markets for the month of June. Some impacts on a regional basis with the continued weather in the northeast, south and southeast regions. Delays in shipments continue across multiple regions.” In the primary metals industry, a respondent highlighted, “General concern about overall industry economics. Pricing weakness continues, and we anticipate more headwinds in the coming months for spot orders and inflation. Contract order book remains steady.”