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According to the May Manufacturing ISM Report on Business, economic activity in the US manufacturing sector contracted for the third consecutive month. The May Manufacturing PMI registered 48.5 percent, 0.2 percentage points lower than the 48.7 percent recorded in April. Contraction in most of the indexes that measure demand and output have slowed, while inputs have started to weaken as noted below.
Demand indicators were mixed, with the New Orders and Backlog of Orders indexes contracting at slower rates, while the Customers’ Inventories and New Export Orders indexes contracted more strongly. A “too low” status for the Customers’ Inventories Index is usually considered positive for future production.
Regarding output, the Production Index increased from an “alarmingly” low reading the previous month, but factory output continued to contract in May, indicating that panelists’ companies are still revising production plans downward amid economic uncertainty. The Employment Index ticked up for a second consecutive month but remained in contraction, as head-count reductions continued. Companies generally opted for layoffs because they are quicker to implement than attrition.
Inputs are defined as supplier deliveries, inventories, prices, and imports. The Inventories Index entered contraction territory after expanding as companies completed pull-forward activity ahead of tariffs, while the Supplier Deliveries Index indicated continuing slow performance, reflecting ongoing delays in clearing goods through ports of entry. Tariffs-induced prices growth slowed slightly, while the Imports Index contracted 7.2 percentage points compared with April.
The seven manufacturing industries reporting growth in May—listed in order—included: Plastics & Rubber Products; Nonmetallic Mineral Products; Petroleum & Coal Products; Furniture & Related Products; Electrical Equipment, Appliances & Components; Fabricated Metal Products; and Machinery.
The seven industries reporting contraction in May, in order, included: Paper Products; Wood Products; Printing & Related Support Activities; Food, Beverage & Tobacco Products; Transportation Equipment; Chemical Products; and Primary Metals.
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