U.S. manufacturing expanded for the third consecutive month in May, building on momentum it gained in March. The Institute for Supply Management’s leading growth index, the PMI, registered 51.3 percent in May, an increase of 0.5 percentage points from the prior month.
Although the pace of new orders slowed slightly – to 55.7 from 55.8 – levels are still well above 50, the line of demarcation between growth and contraction. The May data is on track to reach the ISM panel’s prediction of 2.8 percent growth for the year, said Brad Holcomb, chair of the Institute for Supply Management (ISM) Manufacturing Business Survey Committee. "I think we’ll see most of that in the second half of the year,” he added. "The first four months of the year were a bit of a downer."
Supplier deliveries jumped 5 percent to 54.1, the highest level since December 2014. “Suppliers are having a harder time keeping up with demand and in a growth market that’s a good thing,” Holcomb explained. The supply chain has been operating with inventory levels under 50 for some time, and they were further trimmed in May: inventories of raw materials registered 45 percent, a decrease of 0.5 percentage point from April.
“Things, for me, are pointing in the right direction,” said Holcomb. With inventory levels remaining low and orders picking up there’s a bit of an inventory shortage, he said. “Suppliers are now having a harder time catching up so [their deliveries] are slower.” The ISM’s production index registered 52.6 percent, 1.6 percentage points lower than the April reading of 54.2 percent; imports and exports remained unchanged.
The ISM’s prices index registered 63.5 percent, an increase of 4.5 percentage points from April, indicating higher raw materials prices for the third consecutive month. This does not necessarily reflect an increase in prices, Holcomb pointed out: prices are still regaining lost ground. May’s price index was the highest since June 2011. The ISM’s panel expects only a slight increase in prices for the year of 0.6 percent, according to its semiannual report. And, although manufacturers may be paying more for oil and energy, stability in the energy market is a positive sign for the overall economy.
China’s economy is having a mixed impact on manufacturers: companies in the computer and electronics business reported China is dragging down orders while chemical producers are seeing consistent sales growth in greater China, North Asia, Southeast Asia, Canada and Mexico. Overall, 14 out of 18 industries tracked by the ISM reported an increase in new orders in May (down from 15 in April), and 12 of 18 industries reported an increase in production in May (down from 15 in April).