Manufacturing activity, for the month of May, remained on a strong growth path, according to data issued this week by the Institute for Supply Management (ISM).
In its monthly Manufacturing Report on Business, ISM said that the report’s key metric, the PMI, at 61.2 (a reading of 50 or higher indicates growth), saw a 0.5% increase, from April to May. This marked the twelfth consecutive month of PMI growth, coupled with May also representing the twelfth consecutive month of growth for the overall economy. And the May PMI is 2.8% above the 12-month average of 61.2, with March’s 64.7 being the high and June 2020’s 52.2 being the low for that period.
ISM reported that 16 of the 18 manufacturing sectors it tracks saw growth in May including: Furniture & Related Products; Nonmetallic Mineral Products; Plastics & Rubber Products; Textile Mills; Primary Metals; Computer & Electronic Products; Electrical Equipment, Appliances & Components; Fabricated Metal Products; Food, Beverage & Tobacco Products; Machinery; Chemical Products; Miscellaneous Manufacturing; Transportation Equipment; Wood Products; Paper Products; and Petroleum & Coal Products. The only industry contracting in May was Printing & Related Support Activities.
The report’s key manufacturing metrics were mixed in May.
New orders, which are commonly referred to as the engine that drives manufacturing, headed up 2.7% to 67.0, growing, at a slower rate, for the 12th consecutive month. ISM said 16 of 18 manufacturing sectors reported growth in May.
Production—at 58.5—was off 4% compared to April, growing, at a slower rate, for the 12th consecutive month, and was also down nearly 10% compared to the recent high, of 68.1, in March (the highest monthly reading for production since January 2004’s 69.3). Employment—at 50.9—saw a 4.2% decrease, growing, at a slower rate, for the sixth straight month, and inventories—at 50.8—grew after contracting in April.
Other notable metrics included:
-Supplier Deliveries—at 78.8 (a reading above 50 indicates contraction)— slowed, at a faster rate, for the 63rd consecutive month, following April’s 75.0, with the delivery performance of suppliers to manufacturing organizations slower in May;
-Backlog of Orders—at 70.6—increased 2.4%, growing, at a faster rate, for the 11th consecutive month, marking the highest reading for this subindex since ISM started reporting it in January 1993;
-Customers’ Inventories were off 0.4% to 28.0, falling too low, at a faster rate, for the 56th consecutive month; and
Prices decreasing 1.6%, to 88.0, increasing, at a slower rate, for the 12th consecutive month, with prices over the last four months at its highest levels since July 2008, the last of five straight months over 80 percent, when it registered 90.4 percent
Comments from ISM respondents included in the report reflected the impact of businesses re-opening, coupled with concerns on different fronts, too.
“Supplier performance—deliveries, quality, it’s all suffering. Demand is high, and we are struggling to find employees to help us keep up,” said a Computer & Electronic Products respondent.
And labor shortage concerns were an issue for respondents in various industries. An Electrical Equipment Appliances & Components respondent said that labor shortages are impacting internal and supplier production, adding that the logistics performance has been “terrible.”
Tim Fiore, Chair of the ISM’s Manufacturing Business Survey Committee, said that employment at ISM panelist companies continue to deal with hiring difficulties in delivering product, coupled with ongoing related supply chain efficiency issues.
Addressing the still-impressive new orders reading, Fiore attributed some of that to May traditionally being an important month for manufacturing.
“We have raw materials lead times at record levels now, in that we have not had them at levels this high, at least going back to the 1970s,” he said. “That could be spurring on more and more activity, because people have to cover their outstanding orders with lead times being pushed out. They need orders in place to cover that.”
The three-month period beginning in April signals a hectic time for the manufacturing, noted Fiore, in advance of gearing up for the holidays and also many manufacturing workers taking time off in July and August, with labor levels trending down over those summer months.
With inventories rising more than 4% in May, Fiore said it is reasonable to expect it to stay in its current range until the supplier deliveries number somewhat frees up.
“Until that [supplier deliveries] number comes down, I don’t expect inventories to grow much,” he said. “I was happy that that raw materials inventory number did not contract again like it did in the prior month. What I am expecting is that the supplier delivery number will come down as more people enter the workforce, and more than 20 states indicating that they are not going to pay for the enhanced unemployment benefits anymore. That will take the month of June and maybe July to really show itself. The supplier delivery numbers will come down, the inventory number will go up, not much more than the 54-55 level. But, more importantly, the production number will get back into the 63-64 range. There is so much work to be done here, with record backlogs, record customer inventories, and record lead times. There is plenty of opportunity to produce; we just don’t have the people to do it.”