Slower Growth in New Orders Reduces the ISM Index of Manufacturing Activity

By June 1, 2012Economy

The Institute for Supply Management (ISM) released its Purchasing Managers Index for manufacturing this morning, showing a decline from 54.8 in April to 53.5 in May. On the one hand, this represents the 34th consecutive month of expansion in the manufacturing sector, and yet, it also indicates a slower pace of growth, particularly for new orders. Such weaknesses have been seen in other recent indicators, as well, including today’s jobs report.

Looking specifically at various components of the index, though, it was not all bad news. Several components noted a pickup in activity in May, including production which rose from 55.6 to 61.0. Similar improvements were seen with employment and exports.

Inventories continue to contract, but at a slower rate. Meanwhile, prices for raw materials shifted from rising sharply last month to moving lower this month, essentially because of falling energy costs.

Overall, this is a mixed report. Slower growth for new orders is not positive, especially as it is a proxy of future activity. And yet, improvements in some measures point to continued expansion in the sector. The selected comments from survey respondents tend to mirror this, with some suggesting modest to strong growth in sales and production while others note recent and perhaps unexpected weaknesses.

Given the slower pace of growth for both jobs and manufacturing activity, it is clear that rising levels of anxieties from Europe and elsewhere might be having an impact. A growing global and U.S. economy is important for manufacturers to sustain their expansion and it will be incumbent on policymakers to adopt measures that will get the economy moving again, while also reducing tax and regulatory uncertainties.

Chad Moutray is chief economist, National Association of Manufacturers.

Chad Moutray

Chad Moutray

Chad Moutray is chief economist for the National Association of Manufacturers (NAM), where he serves as the NAM’s economic forecaster and spokesperson on economic issues. He frequently comments on current economic conditions for manufacturers through professional presentations and media interviews. He has appeared on Bloomberg, CNBC, C-SPAN, Fox Business and Fox News, among other news outlets.
Chad Moutray

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