The May ISM Manufacturing Index registered 46.9, barely changed from April’s 47.1 reading and roughly in line with expectations for a 47.0 print.
New orders pulled back 3.1 percentage points (pp) to 42.6, while new export orders ticked up 0.2 pp to 50.0.
The backlog of orders sub-index tumbled to 37.5, down 5.6 pp from April’s 43.1 print. This is the lowest reading since March 2009.
The production and employment indexes both reflected growth, rising 2.2 pp and 1.2 pp, respectively, to 51.1 and 51.4.
The supplier deliveries sub-index fell to 43.5 from 44.6 in April, reflecting faster supplier deliveries. The prices index showed raw materials gave back some of their gains from April as the index pulled back 9.0 pp to 44.2.
Four of 18 manufacturing industries reported growth in May. The industries reporting growth are Nonmetallic Mineral Products; Furniture & Related Products; Transportation Equipment; and Fabricated Metal Products.
Key Implications
The slowdown in the manufacturing sector continues with little relief in sight. Nine consecutive months of falling new orders and order backlogs contracting at their fastest clip since the Great Recession reflect a sector whose near-term outlook is facing significant headwinds.
Looking forward, macroeconomic conditions are unlikely to improve the sector’s prospects. Strong labor market data is lifting the odds that the Fed may have to extend its rate hiking cycle – prolonging the pain for the interest rate sensitive goods sector. That said, there is a silver lining to this report as the Transportation Equipment sector reported expansion in the month. With falling supplier delivery times, and clearing backlogs, the prospect of increased inventory in the automotive sector will be a welcome development for firms and households that have delayed purchases amidst historically tight supply conditions.
