May manufacturing output posts gains, reports ISM

The May PMI, the index used by the ISM to measure growth, was up 0.1% to 54.9 (a reading of 50 or higher indicates growth), with the PMI now having grown for nine consecutive months.

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Manufacturing growth eked out a slight increase in May, according to the most recent edition of the Institute for Supply Management’s monthly Manufacturing Report on Business, which was released yesterday.

The May PMI, the index used by the ISM to measure growth, was up 0.1% to 54.9 (a reading of 50 or higher indicates growth), with the PMI now having grown for nine consecutive months. The May PMI is 1% above the 12-month average of 53.9 and 1.2% below the 2017 average of 56.1, with the over all economy growing for 96 consecutive months.

ISM said that 15 of the 18 manufacturing sectors contributing to the report grew in May, including Nonmetallic Mineral Products; Furniture & Related Products; Plastics & Rubber Products; Machinery; Primary Metals; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; Paper Products; Miscellaneous Manufacturing; Computer & Electronic Products; Transportation Equipment; Chemical Products; Fabricated Metal Products; Petroleum & Coal Products; and Printing & Related Support Activities. Two industries reported contraction in May compared to April: Apparel, Leather & Allied Products; and Textile Mills.

The key metrics in the May report were somewhat mixed.

New orders, which are often viewed as the engine driving manufacturing, increased 2% over April to 59.5, with growth now intact for 9 straight months, and the May reading trending back to higher levels (closer to 60) which have been largely intact since December 2016. ISM said that 14 of the 18 industries in the report saw growth in new orders in May.

Production dipped 1.5% to 57.1, but also remained in growth mode for the ninth consecutive month and was well above the ISM production benchmark for growth of 51.4. Employment headed up 1.5% to 53.5, and remained on the right side of growth for the eighth month in a row. The ISM said that this reflects how the search for qualified workers has become more difficult. Inventories saw a 0.5% increase to 51.5 and grew for the second straight month.

While the increase in the PMI was slight, that did not deter from the optimism about market conditions cited by ISM member respondents.

A plastics & rubber products respondent said that sales have picked up compared to the last two months, with customer demand increasing, and a chemical products respondent cited how agricultural demand is very strong. A transportation respondent sent a bit of a mixed message, explaining that the economy is still strong, but the political climate can change things very quickly.

In an interview, Tim Fiore, chair of ISM’s Manufacturing Business Survey Committee, said that a strong new orders number was key in setting a positive tone for the PMI.

“It was a really strong number, and as long as that number stays strong then everything else should follow,” he explained. “Production decreased a little bit but is still strong and growing. Supplier deliveries are improving, which means they were able to adjust and keep up with demand. This is a good thing…and is not stressed to the point where they cannot keep up with demand and things are relaxing a bit.”

Prices fell 8% to 60.5 with Fiore noting the pricing pressure seems to be decreasing, even though May’s number was still very strong.

Fiore said a fair amount of the declines stem from raw commodity costs, which tend to be global commodities, while not globally priced the same but have relationships to each other across regions.

“Prices declining are a good sign for suppliers in that they are now able to lay in longer order streams and not have to buy so much spot (commodities) and worry about prices dropping off in the long-term contracts,” he said. “That, to me, means the manufacturing community will have better assurance on supply, with the pricing structure more in line with what was forecasted late last year.”

May inventories edged up 0.5% to 51.5, growing for the second month in a row, with customers’ inventories up 4% to 49.5, slowing for the eighth straight month.

Should the customer number continue to rise, Fiore said that has the potential to negatively impact factory output, with the May number possibly being tied to a pause in consumption.

About the Author

Jeff Berman, Group News Editor
Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. Contact Jeff Berman

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