US manufacturing activity continues expansion for 5th consecutive month: ISM  

Overall, US economic activity expanded for the 19th month in a row in May. 

Readings above 50% generally point to economic growth in the manufacturing sector. And readings below 50% suggest a decrease in economic activity. 

However, there’s an exception in the case of a reading over 50% for the supplier deliveries index. It is the only ISM PMI reports index that is the opposite; a reading of above 50% indicates slower deliveries. Note, slower deliveries typically signal economic improvement and customer demand increases. 

Index notables 

When the Manufacturing PMI remains consistently at or above 47.5% over a period of time, it generally indicates an expansion of the economy.

Susan Spence, chair of the ISM Manufacturing Business Survey Committee, found that the nation’s supply executives reported persistently slowing supply deliveries.

“The supplier deliveries index indicated slowing performance for the sixth month in a row after one month in ‘faster’ territory,” Spence said in a statement. “The reading of 60.6% repeated its April figure after the index increased in each of the previous five months.”  

In May, three of four demand indicators, the new orders, backlog of orders, and new export orders indexes, were in expansion.  

Concerning output indices, the production index remained in expansion for the seventh month in a row, while the employment index increased by 2.2 percentage points but remained in contraction. 

Half of respondents reported they continue managing headcount at their companies. The other half are currently hiring.  

Supplier deliveries, inventories, and the prices and imports indices make up the input indices. Overall, the indices improved compared to April. Notably, the supplier deliveries index remained at its highest level since May 2022. 

Meanwhile, the inventories index contracted at a slower rate month over month (m/m), and the prices index decreased by 2.5 percentage points as the imports index grew.

Sentiment

The monthly report broke down the respondents’ sentiments and highlighted the main concerns they reported during the month.

“In May, 25% of the comments were positive and 69% were negative, with a 1-to-2.7 ratio of positive to negative sentiment,” Spence stated.

She noted that among comments, the Iran war was mentioned in 42%; tariffs in 18%; and 57% of the panelists mentioned pricing volatility as an issue for their companies.

Of all parts of the manufacturing economy, only 2% of the sector’s gross domestic product (GDP) contracted during May. In April, 19% of the sector’s GDP contracted.

“In May, all indexes headed in a direction that suggests sustained growth,” said Spence.

Direct responses

One transportation equipment manufacturer stated concerns about the supply chain implications caused by prolonged global conflict.

“Impact of Iran conflict starting to directly and negatively impact cost of supply chain. Oil and related commodities are escalating in price,” the manufacturer stated.

A respondent in machinery manufacturing expressed similar sentiments.

“The Middle East conflict is triggering shipment delays and uncertainties. Elevated gas prices and inflation will surely impact our purchases,” the respondent said. “However, over the last quarter, we’ve seen increased demand that was unexpected.”

Increasing demand from growing industries was cited by a transportation manufacturer as a cause for availbility concerns.