U.S. Manufacturing data, released today by the Institute for Supply Management [ISM], showed the decline in U.S. manufacturing decelerated in May, indicating the sector is faring better than analysts had expected. Even though ISM noted that May’s manufacturing activity failed to grow for the fourth straight month, the report showed “signs of improvement” since last month and the 28-year low of 32.9 printed in December.
From ISM: Manufacturing contracted in May as the PMI registered 42.8 percent, which is 2.7 percentage points higher than the 40.1 percent reported in April.
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A PMI in excess of 41.2 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the PMI indicates growth in the overall economy following seven months of decline, and continuing contraction in the manufacturing sector.
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“While employment and inventories continue to decline at a rapid rate and the sector continued to contract during the month, there are signs of improvement. May is the first month of growth in the New Orders Index since November 2007, with nine of 18 industries reporting growth. New orders are considered a leading indicator, and the index has risen rapidly after bottoming at 23.1 percent in December 2008. Also, the Customers’ Inventories Index remained below 50 percent for the second consecutive month, offering encouragement that supply chains are starting to free themselves of excess inventories as nine industries report their customers’ inventories as ‘too low’. The prices that manufacturers pay for raw materials and services continued to decline, but at a slower rate than in April.”emphasis added
A score below 50 still indicates contraction, but the measure has been shrinking more slowly every month since December. The report showed that the overall economy grew for the 79th straight month despite the manufacturing contraction.
