A gauge of U.S. manufacturing activity slipped to its lowest level since October 2016, according to the Institute for Supply Management’s May survey of manufacturing executives.
U.S. manufacturing activity now stands at 52.1%, down 0.7% from April’s reading of 52.8%.
This means that while U.S. manufacturing is still growing, the sector is expanding at a slower rate. With any reading over 50% indicating expansion, the sector is now a percentage point away from contraction.
May 2019 stands as the 39th consecutive month of growth in the U.S. manufacturing sector, and the 121st straight month of growth in the economy overall.
Says Tim Fiore, Chairman of the ISM: “Comments from the panel reflect continued expanding business strength, but at soft levels consistent with the early-2016 expansion.”
The silver lining in this month’s ISM report is a surprise jump in exports coupled with a contraction in imports, suggesting a possible narrowing of the trade gap. In addition, hiring recovered somewhat from its steep decline in April, while new orders edged up slightly.
Overall, the ISM reports that new orders, production and employment continue to grow, though at a slower rate. Supplier deliveries slowed’ customer inventories were too low; while prices jumped.
Related: New Manufacturing Plants Announced in May
Just eleven of eighteen industries surveyed by the ISM in May reported growth. Leading the way was printing & related support activities; furniture & related products; plastics & rubber products; textile mills; and miscellaneous manufacturing.
The six sectors that reported a contraction in the month of May were apparel, leather & allied products; primary metals; petroleum & coal products; wood products; paper products and fabricated metal products.
Exports Increase; Imports Contract
Imports contracted for a second consecutive month, according to the ISM, with that index coming in at 49.4%, down 0.4% from April’s reading of 49.8%.
"Imports contracted for the second straight month, with many respondents reporting continual draw down of existing inventories and less of a dependence on overseas sources as primary reasons,” said Fiore.
Apparel, leather & allied products; petroleum & coal products; primary metals; transportation equipment; and machinery were among the industries reporting a slowdown in imports.
New export orders, on the other hand, expanded in May, with the ISM’s New Exports Index up 1.5% to a current reading of 51%.
Again, trade issues were cited as among the factors impacting the import/export ratio.
Said Tim Fiore: “New Export orders rebounded from last month’s contraction, with many respondents noting trade and Brexit issues as reasons for increased activity.”
The five industries reporting growth in exports included wood products; chemical products; fabricated metal products; food, beverage, & tobacco products and miscellaneous manufacturing.
Those reporting a slowdown in exports included apparel, leather & allied products; primary metals; nonmetallic mineral products; and furniture & related products, among others.
New Orders Edge Up
The ISM’s New Orders Index, which sank to a near-contractionary reading of 51.8% in April, edged up 1% in May to 52.7%.
The New Orders Index has generally led the positive readings in manufacturing activity over the past few years. The index has remained in expansion territory for 38 consecutive months, meaning it has posted above the 50% mark that defines expansion.
Manufacturing Production Slides
The ISM’s Production Index edged down 1% in May to 51.3%, according to the ISM.
May stood as the 33rd consecutive month of growth for the ISM’s Production Index, albeit at a slower rate.
“Production expansion continued in May, but at a slower pace compared to April. Production output was not able to improve customer-inventory positions but was able to contribute to backlog orders reaching contraction territory,” said Fiore.
Lower production readings agree with recent factory production readings released by the Federal Reserve, which found manufacturing output came to a virtual standstill in March.
Related: Where is U.S. Manufacturing Headed?
Employment Steps Up
The ISM’s reading on employment recovered slightly in May after sinking 5.1% in April.
The employment index now stands at 53.7%, up 1.3%. May stands as the 32nd consecutive month of expanded employment in the U.S. manufacturing sector, though hiring has slowed significantly.
By comparison, the ISM’s employment index stood at a near-historic high of 60.5% as recently as January 2019.
“Comments received [from the panel] include hiring of recent college graduates, increases in temporary labor to support seasonality, and in some cases, deferring hiring due to economic uncertainty,” said Fiore.
Conclusion
The ISM’s manufacturing activity index covers a multitude of growth metrics, which overall point to a manufacturing sector that is still expanding, though at a slower rate.
Bright spots included growth in new exports, an uptick in hiring and new orders. Production, inventories, and supplier deliveries all grew at a slower rate.
About the ISM
The Institute for Supply Management® (ISM®) is the first and largest not-for-profit professional supply management organization worldwide.
Founded in 1915, ISM has over 50,000 members located in 100 countries.
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