Continuing a string of bad news for manufacturers, the Institute for Supply Management (ISM) released its Purchasing Managers’ Index (PMI) for manufacturing this morning, with the sector’s growth rate falling dramatically. The PMI fell from 60.4 in April to 53.5 in May. Numbers over 50 signify growth in the sector; however, while manufacturing is still increasing output, it is at a much slower pace than in prior months. The accompanying chart illustrates this point. The indices for new orders, production, employment, export sales, and inventories all fell for the month.
There were many issues at play here, many of which we have discussed previously. Certainly, a large part of the decline was related to supply-chain issues, for instance, particularly in the durable goods sector. But, commenters also stressed the toll that rising raw material prices were having to their businesses. Bad weather was also a factor according to one sample respondent.
It is clear that many manufacturers are feeling the effects of pricing pressures and challenges on their bottom line.
There remains a large disconnect between current news surrounding manufacturing and the economy and longer-term business outlooks for the sector. A number of surveys, for instance, have suggested that manufacturers are relatively optimistic about production and new orders over the next six months, for instance. It will be interesting to see how these current figures alter that view, or whether the current statistics are a speed bump on a larger growth trajectory.
Again, as I mentioned in my previous post today its clear that manufacturing has cooled in the past few months. Businesses of all sizes need help from policymakers in Washington to give them the needed tools to grow and create jobs.
Chad Moutray is chief economist, National Association of Manufacturers.