The domestic manufacturing industry continued to expand in May as the nation’s leading production index increased 0.1 percent from the prior month. The Institute for Supply Management’s PMI reached 54.9 percent in May, marking the 96th consecutive month of industry growth.
New orders, employment and inventories of raw materials also increased in May, indicating manufacturers see continued, underlying demand for their products. New orders registered 59.5 percent, an increase of 2 percentage points from the April reading of 57.5 percent; the employment index registered 53.5 percent, an increase of 1.5 percentage points from the prior month. Inventories of raw materials reached 51.5 percent, an increase of 0.5 percentage point from the April reading of 51 percent. Any number above 50 on the ISM index indicates expansion; any number below 50 signals contraction.
“New order input is still going strong and even though production is slightly down, supplier deliveries remain strong,” said Tim Fiore, chair of the ISM’s Manufacturing Business Survey Committee. Production dropped 1.5 percent to reach 57.1 in May, he added, a level that is still well above 50.
For procurement executives, the best news could be that raw materials prices are stabilizing. The ISM’s prices index registered 60.5 percent in May, a decrease of 8 percentage points from the April reading of 68.5 percent. Raw materials prices continue to rise, but at a slower rate than in prior months. Suppliers are still trying to regain ground they lost since the recent recession. “If you look at commodities,” said Fiore, “prices are moving more toward where they’d be in a normal economy.”
During May, 30 percent of ISM respondents reported paying higher prices, 9 percent reported paying lower prices, and 61 percent of supply executives reported paying the same prices as in April. “A review of ‘Commodities Up in Price’ indicates that basic commodity cost increases experienced in 2016 have made their way into higher value components, and with these costs moderating, more normal buying policies focused on supply assurance at affordable prices will be more prevalent,” Fiore said.
Factories added workers in May, although segments of the manufacturing industry continue to see a shortage of skilled labor. Even if demand is stable, manufacturers are slow to hire workers, Fiore explains, because of considerations beyond wages such as healthcare, retirement and other benefits. With the Trump administration’s rollback of certain regulations, businesses may become more comfortable with investing in their workforce.
Although imports and exports both declined by 2 percentage points in May, both indexes are still well above 50, at 53.5 and 57.5, respectively.
Comments from the ISM’s panel of purchasing executives generally reflect stable to growing business conditions, with new orders, employment and inventories of raw materials all growing in May compared to April, Fiore concluded. “The slowing of pricing pressure, especially in basic commodities, should have a positive impact on margins and buying policies as this moderation moves up the value chain.”