In May, new orders, output grew, while prices eased and employment fell into contraction
U.S. manufacturing activity accelerated in May, following two months of muted growth, according to the Institute for Supply Management’s May survey of supply chain executives.
The ISM reports its index of manufacturing activity increased 0.7% in May to a reading of 56.1%. Any reading over 50 indicates expansion, with May marking the U.S. manufacturing sector’s 24th straight month of growth.
Growth in May was fueled by strong readings in new orders and output, while both prices and employment eased.
The New Orders index rose 1.6% to a reading of 55.1%, while the production index edged up 0.6% to 54.2%. Notably, exports outpaced imports in May, with imports falling 2.7% to a contractionary reading of 48.7%, while exports rose 0.2% to 52.9%.
Meanwhile, employment fell into contraction in May, dipping 1.3% to a reading of 49.6%.
Timothy Fiore, the Chairman of the ISM notes that the U.S. manufacturing sector remains in a “demand driven, supply chain-constrained environment.”
Despite the contraction in the Employment Index Fiore noted that companies reported a lower level of quits compared to April. “Despite the Employment Index contracting in May, companies improved their progress on addressing moderate-term labor shortages at all tiers of the supply chain.”
Meanwhile, prices remain at historic highs, but the much-watched Prices Index fell 2.4% in May to a reading of 82.2%.
“Overseas partners’ disruptions are beginning to impact U.S. manufacturing, creating a near-term headwind for factory output growth. Ten percent of panelists’ general comments expressed difficulty obtaining material from their Asian partners, which will impact reliable deliveries in the summer months,” says Fiore.
Adhesives, semiconductors, aluminum, electrical components, and steel products remain on the list of commodities up in price. Packaging film and paper, resin-based products, and power transmission products, and sunflower products have recently been added to the list.
Manufacturers were slightly more optimistic in May compared to April. – though not quite as optimistic as they were in March. The ISM tracked five positive comments for every one negative comment provided by industrial executives. This is up from the three positive comments for every one negative comment registered in April. Manufacturer optimism had consistently fallen since the start of 2022, with May marking the first month of the year that optimism has grown.
In May, fifteen of eighteen industries reported growth, strongest in apparel, leather & allied products; printing & related support activities, machinery, nonmetallic mineral products, and computer & electronic products.
What Manufacturers Are Saying About Business Conditions
Comments from manufacturers varied widely depending on the industry, with many reflecting continued concerns about supply chain disruptions and high prices, and fallout from COVID lockdowns in China.
One executive in the in the computer & electronic products industry stated “Suppliers are seeing a light at the end of the tunnel for restoration of (semiconductor) component supply. Second-quarter and Q3 supply appears to be loosening”
Yet another in the transportation equipment industry noted “The challenge with semiconductors hasn’t softened; the situation is worsening due to Chinese COVID lockdowns.”
Another in the food processing industry stated, “Input costs, particularly grain, oil, dairy and protein, are rising faster than can be passed along at retail and food service, with no relief in sight.”
“Price increases haven’t let up,” said another in the plastics & rubber industry, “I thought 2022 was going to be better, but it hasn’t been. Shortages (among other issues) are still disrupting the supply chain.”
Another in the machinery industry noted “Our order books are still strong,” while a respondent in the chemicals industry said “While orders remain strong and backlogs exist, there’s a softening in forecasted orders for leading indicator-type customer and business units.”
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