The May ISM manufacturing index registered 56.1, topping expectations of a 54.5 print. The index rose 0.7 percentage points from the April reading of 55.4.
New orders rose by 1.6 percentage points to 55.1, while new export orders rose by 0.2 percentage points to 52.9.
The backlog of orders sub-index came in at 58.7, rising 2.7 percentage points from April’s 56.0 print.
The production index increased 0.6 percentage points to 54.2 while the employment index fell 1.3 percentage points to 49.6.
The supplier deliveries sub-index fell to 65.7 from 67.2 in April. The sub-index continues to reflect difficulties in improving delivery rates due to production issues related to the pandemic.
15 of 18 manufacturing industries reported growth in May. Growth was led by Apparel, Leather & Allied Products; printing & Related Support Activities; Machinery; Nonmetallic Mineral Products; Computer Electronic Products; and Food, Beverage & Tobacco Products.
Key Implications
May marks two straight years of expansion for the U.S. manufacturing sector as the PMI registered above the 50-print signifying growth for a 24th consecutive month.
Growth has slowed as the initial bounce from the pandemic shock has faded. Despite the uptick in May, decelerations in new orders and new export orders point to slowing demand going forward. This was to be expected as the economy re-opens and consumer demand shifted from goods and back to services spending.
Supply side concerns persist as supplier delivery times remain elevated despite notching an improvement in May. In the coming months, a raft of goods deliveries from China could test port infrastructure once again as lockdowns are eased in Shanghai. That said, with easing demand, manufacturers should be able to work through order backlogs. Indeed, the order backlogs index has been trending downward in fits and starts since last May.
Softer demand and easing supply congestion for goods should take some fuel off the inflationary fire through the back half of 2022, despite pressure from rising input prices. For the manufacturing sector, the risks to the outlook skew to the downside as global growth falters and central banks look to aggressively counter surging inflation.
