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Focus: Manufacturing

Feature Article from Our Supply Chain Trends and Issues Subject Area - See All

From SCDigest's On-Target E-Magazine

June 5, 2012

 
Supply Chain News: US Manufacturing Still Strong in May, ISM Report Says, Though a Couple of Worrying Signs

 

Manufacturing Expands for 34th Straight Month, New Order Grow, as US Looks Like Island of Strength in Global Sea of Concern

 

SCDigest Editorial Staff

At a time of growing economic uncertainty, driven in large part by continued troubles in Europe relative to sovereign debt, the Purchasing Managers Index for May released last week by the Institute for Supply Management showed generally strong if somewhat mixed results, as from our view manufacturing continues to lead the way in the US economy.

SCDigest Says:

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Especially impressive was the new orders index, which at a level of 60.1 percent in May was an increase of 1.9 percentage points when compared to the April reading .

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The headline news was that with a level of 53.5, the US PMI was over the 50 mark that eparates expansion from contraction for the 34th consecutive month, though some market watchers were concerned that the May level was down 1.3 percentage points from April's reading of 54.8. That means that while the manufacturing sector is still growing, it is growing at a slower rate than the previous month.

The PMI in all its forms is what is called a "diffusion index," a statistical technique used to represent patterns of change.

The actual score for each discrete category such as production, new orders, and others are calculated by taking the percentage of respondents who say activity is increasing and adding it to half the percent of those who say the area has stayed the same. The full PMI is calculated by average of five of these seasonally adjusted averages. (See Understanding the PMI and other Indexes from the Institute for Supply Management.) ISM does not break out what percent said a metric was increasing versus the percent saying things have stayed the same or decreased.

All this in the context of a US and global economy that appears to be weakening once again. Earlier in the week, for example, the Dept. of Commerce revised down an already modest 2.2% growth estimate for Q1 to just 1.9%. That as the PMIs for China and India in May were also both relatively weak, while many Euro nations are in recession given all the financial problems over there.

All told, it looks to us like US manufacturing is remaining strong even as the non-manufacturing economy wobbles.



US PMI from Mid-2007 to May, 2012

 

 


Source: YCharts


In total, 13 of the 18 manufacturing industries tracked by ISM reported growth in May, in the following order: Nonmetallic Mineral Products; Furniture & Related Products; Apparel, Leather & Allied Products; Miscellaneous Manufacturing; Primary Metals; Electrical Equipment, Appliances & Components; Fabricated Metal Products; Machinery; Textile Mills; Paper Products; Computer & Electronic Products; Printing & Related Support Activities; and Chemical Products. The four industries reporting contraction in May were Plastics & Rubber Products; Petroleum & Coal Products; Food, Beverage & Tobacco Products; and Transportation Equipment.

Especially impressive was the new orders index, which at a level of 60.1 percent in May was an increase of 1.9 percentage points when compared to the April reading of 58.2 and represented the 37th consecutive month that index has been over the 50 mark, as shown in the graphic below (the chart does not include the May level.)

However, in a sense, the report showed some areas of weakness. Inventories showed contraction for the second straight month and three of the past four, with one month just exactly at the 50.0 level.


(Manufacturing article continued below)

CATEGORY SPONSOR: SOFTEON

 

Especially impressive was the new orders index, which at a level of 60.1 percent in May was an increase of 1.9 percentage points when compared to the April reading of 58.2 and represented the 37th consecutive month that index has been over the 50 mark, as shown in the graphic below (the chart does not include the May level.)

 

New Manufacturing Orders Received Through April, 2012

(May Rose to 60.1)

 

 

Source: ISM

 

However, in a sense, the report showed some areas of weakness. Inventories showed contraction for the second straight month and three of the past four, with one month just exactly at the 50.0 level.

More consequentially, Prices Paid dropped a dramatic 13.5 percentage points compared to fall to a level of 47.5, versus the April reading of 61. While manufacturers are surely happy for the lower input costs, slowing demand for raw materials, especially from China, has to be a worrisome sign for the economy.

All told, US manufacturing still seems to be an island of strength amid a global sea of turmoil. Whether that will continue through the summer months is the trillion dollar question.

Any reaction to this latest PMI data? Let us know your thoughts at the Feedback section below.


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