ISM: Manufacturing Activity Rebounded in May, with Continued Strength in Demand

The Institute for Supply Management (ISM) reported that manufacturing activity rebounded in May, with continued strength in demand. The ISM Manufacturing Purchasing Managers’ Index rose from 57.3 in April to 58.7 in May. The underlying data increased, including new orders (up from 61.2 to 63.7), production (up from 57.2 to 61.5) and employment (up from 54.2 to 56.3). The index for new orders has now been 60 or greater for 13 straight months, illustrating the robustness of sales in the sector across the past year. The sample comments tend to echo that finding, with respondents noting healthy growth in activity and a promising outlook, even as they cite some trade worries. Along those lines, exports eased a bit (down from 57.7 to 55.6), but expanded modestly overall.

Respondents also noted workforce challenges, with one respondent saying it was “very difficult to hire skilled and unskilled labor.” The employment measure ticked higher in the May data (up from 54.2 to 56.3). That is consistent with solid labor market data, including the latest jobs numbers, with manufacturers continuing to cite the inability to attract and retain workers as a top concern, according to a recent NAM survey.

With ever-stronger economic growth, manufacturers report accelerated input costs in the ISM release. Indeed, prices for raw materials have remained highly elevated (up from 79.3 to 79.5), with the measure at a level not seen in seven years. More than 62 percent of manufacturing respondents said their costs had risen in May, with just 3.1 percent saying they decreased. This reflects higher commodity costs, even as overall pricing pressures continue to be largely modest (but rising), at least for now.

In other news, inventories slowed in May to an expansion that was barely above neutral (down from 52.9 to 50.2). Nonetheless, it was the fifth straight monthly growth in inventories, pulling back from February’s near eight-year high. More than anything, the recent growth in inventories is consistent with the healthy gains in overall production.

Chad Moutray

Chad Moutray

Chad Moutray is chief economist for the National Association of Manufacturers (NAM) and the Director of the Center for Manufacturing Research for The Manufacturing Institute, 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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