The US Purchasing Managers Index (PMI) for May from the Institute for Supply Management (ISM) came at a level of 46.9, down 0.2 percentage point versus the 47.1 recorded in April, and also below the key 50 mark that separates US manufacturing expansion from contraction for the seventh straight month.
Before that the US saw a 28-month period of manufacturing growth after May 2020, not long after the start of the pandemic earlier that year.
The PMI tracks closely but not exactly with the overall US economy. The May PMI indicates a sixth month of overall economic contraction after a 30-month period of expansion.
What’s more, the New Orders Index remained in deep contraction territory at 42.6, which was 3.1 percentage points lower than the figure of 45.7 seen in April in bad news for future US manufacturing activity.
It was mostly bad news in other related measures as well. An exception: the Production Index reading of 51.1, which was a 2.2-percentage point increase compared to April’s figure of 48.9.
The Prices Index registered 44.2, down a big 9 percentage points compared to the April figure of 53.2. That means companies saw a significant decrease in the cost of components, materials and other inputs after those prices were up a bit the month before. This index (below 50 = falling prices), was just a few months ago above 80, as inflation took off.
In more bad economic news, the Backlog of Orders Index came in at just 37.5, a big 5.6 percentage points lower than the April reading of 43.1, meaning order books are shrinking dramatically.
The Supplier Deliveries Index figure of 43.5 was 1.1 percentage points lower than the 44.6 recorded in April; this is the index’s lowest reading since March 2009, meaning companies are seeing faster deliveries from vendors, which could be a symptom of a slowing economy.
The Inventories Index dropped 0.5 percentage point to 45.8, also below the key 50 mark, indicating inventory levels at companies are decreasing.
“The US manufacturing sector shrank again, with the Manufacturing PMI losing a bit of ground compared to the previous month, indicating a faster rate of contraction,” commented Timothy Fiore, Chair of the Institute for Supply Management Manufacturing Business Survey Committee.
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He added that “The May composite index reading reflects companies continuing to manage outputs to better match demand for the first half of 2023 and prepare for growth in the late summer/early fall period. However, there is clearly more business uncertainty in May.”
As always, the ISM report provides a graphic of the full PMI scores for the last 12 months, which as can be seen has the measure trending down since June of 2022, and it is now averaging just 49.4 over the past year, below the key 50 level.
US PMI Last 12 Months
Source: ISM
Just four of the US 18 industry sectors tracked by the PMI reported growth in March: non-metallic mineral products; furniture & related products; transportation equipment; and fabricated metal products.
As always, there were some interesting comments from PMI survey respondents.
Said one manager from the transport equipment sector: “We continue to have a strong backlog for our customer orders; however, new orders are slowing. Our supplier on-time delivery continues to be a challenge for us, and we still face price increases on a weekly basis. Labor shortages are getting better within our organization and throughout our supply chain.”
Added another respondent in the electrical equipment sector: "Industrial and high-tech demands are pushing out, as a slowdown is clear. This is stunting growth and currently making 2023 demand look flat to only slightly up, compared to original projections of 10% growth.”
Finally, a manager in the furniture sector said that “Although sales are slightly lower, they are holding at current rate — soft, not catastrophic.”
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