U.S. manufacturing activity expanded at a faster rate in May as new orders, production, and employment continued to rise, according to a new report issued this morning by the Institute for Supply Management (ISM).
According to the ISM’s survey of purchase executives, the gauge of U.S. manufacturing activity now stands at 58.7%, up 1.4% from April’s reading of 57.3%. May’s reading is the strongest in two months, though it is still shy of 2018’s high 60.8% recorded in February.
May’s reading of 57.3% represents the nation’s 21st straight month of growth in the manufacturing sector, and the 109th consecutive month of growth in the economy overall.
Sixteen of eighteen industries surveyed by the ISM reported growth, led by textile mills; nonmetallic mineral products; electrical equipment; electrical equipment, appliances & components; printing and related support industries; and fabricated metals products.
For a second straight month, there were no industries reporting a contraction.
The ISM’s May survey suggests manufacturing activity, while growing consistently for more than a year, may be picking up speed.
Following a slowdown in hiring in April, the Labor Department’s employment survey, released today, reports U.S. employers hired 223,000 in May, the strongest reading since February. The unemployment rate has reportedly fallen to its lowest rate in 18 years, now at 3.8%.
Manufacturers added 18,000 jobs, which corresponds with a 2.1% increase in the ISM’s employment index.
Reports issued by IndustryNet in May found strong employment growth numbers in the material handling industry, including double-digit growth for hoist and forklift manufacturers. IndustryNet’s latest report on Michigan found the state has added more than 11,000 manufacturing jobs in the past year, with employment gains over the past seven years just short of 100,000 jobs.
High prices, labor shortages cause mixed sentiments among the nation’s manufacturers
The release of today’s ISM report coincides with the Trump administration’s final establishment of import tariffs on steel and aluminum. Major trade partners had been granted an extension since the announcement of the tariff plan back in January, but the new legislation is now official as of May 31st.
The pending import tariffs have cast a shadow on optimism among many of the nation’s manufacturers, causing prices to spike in anticipation and creating an air of uncertainty. With the tariffs now firmly in place, it remains to be seen how this final resolution will play out for the nation’s industrial sector.
One respondent in the transportation equipment sector reported “We are currently overselling our forecast and don’t see an end to the upswing in business. We are very concerned, however, about the tariffs proposed in Section 301 and are focusing on alternatives to Chinese sourcing.”
Says another executive in the petroleum and coal products sector: “Continued talk around steel tariffs has resulted in price increases for domestic line pipe…”
Rising prices continues to be a concern, with the ISM’s price index edging up for a 27th straight month. Price increases were recorded for aluminum; aluminum based products; galvanized and hot roll steel products; stainless steel and steel based products as well as caustic soda; brass; and copper.
“Suppliers are seeing price increases and trying to pass them on,” reports a respondent in the miscellaneous manufacturing sector, while another reports “...lead time and direct material costs are soaring.”
Finally, following a 21-month trend, the ISM’s employment index climbed another 2.1% in May, and now stands at 56.3. With a tight labor market overall and higher production demands, however, manufacturers continue to struggle with a shortage of workers.
“Very difficult to hire skilled and unskilled labor,” reports an executive in the food, beverage & tobacco industry.
New orders, production soars in May
The ISM’s New Orders Index registered 63.7% in May, up 2.5% from April.
According to the ISM, fifteen out of eighteen industries reported an increase in new orders, with nonmetallic mineral products; computer & electronic products; fabricated metal products; electrical equipment, appliances & components; and furniture & related products.
For a fourth straight month, the apparel, leather & allied products industry was the only to report a contraction in new orders.
Production surged in May, up 4.3 percentage points to 61.5. Fifteen of eighteen industries reported an uptick in production, led by textile mills; furniture & related products; electrical equipment, appliances & components; nonmetallic mineral products; plastics & rubber products; and fabricated metal products.
Apparel, leather & allied products was the only industry to report a decline in production.
Other notable changes in the ISM report included a 1.5% increase in backlog of orders to a current level of 63.5, and a 0.9% rise in supplier deliveries to 62.
Imports fell 3.7% to 54.1; while exports declined 2.1% to 55.6. Inventories were down 2.7% to 50.2, while customer inventories was the only ISM metric to indicate contraction – down 4.7% to 44.3.
The Manufacturing ISM® Report On Business® is based on data compiled from purchasing and supply executives nationwide at the Institute for Supply Management (ISM).
