Manufacturing sector expanded for 22nd month, slowdown detected

Economic activity in the manufacturing sector expanded in May for the 22nd consecutive month and the overall economy grew for the 24th consecutive month, says the latest Manufacturing ISM Report On Business. The report suggests a slower rate of growth from April numbers.

The PMI registered 53.5 percent and indicates expansion in the manufacturing sector for the 22nd consecutive month. This month's index, however, registered 6.9 percentage points below the April reading of 60.4 percent. It is the first reading below 60 percent for 2011 and the lowest PMI reported for the past 12 months.

Slower growth in new orders and production are the primary contributors to this month's lower PMI reading. Manufacturing employment continues to show good momentum for the year, as the Employment Index registered 58.2 percent. That is 4.5 percentage points lower than the 62.7 percent reported in April. Manufacturers continue to experience significant cost pressures from commodities and other inputs, the report said.

ISM's New Orders Index registered 51 percent in May. That was a decrease of 10.7 percentage points when compared to the 61.7 percent reported in April. This is the 23rd consecutive month of growth in the New Orders Index. A New Orders Index above 52.1 percent over time is generally consistent with an increase in the Census Bureau's series on manufacturing orders (in constant 2000 dollars).

ISM's Production Index registered 54 percent in May. That was a decrease of 9.8 percentage points when compared to the April reading of 63.8 percent. An index above 51 percent over time is generally consistent with an increase in the Federal Reserve Board's Industrial Production figures. This is the 24th consecutive month the Production Index has registered above 50 percent.

ISM's Employment Index registered 58.2 percent in May. That was 4.5 percentage points lower than the 62.7 percent reported in April. This is the 20th consecutive month of growth in manufacturing employment. An Employment Index above 50.1 percent over time is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

The delivery performance of suppliers to manufacturing organizations was slower in May as the Supplier Deliveries Index registered 55.7 percent. That was 4.5 percentage points lower than the 60.2 percent registered in April. This is the 24th consecutive month the Supplier Deliveries Index has been above 50 percent. A reading above 50 percent indicates slower deliveries.

Manufacturers' inventories contracted in May for the third time in the past four months. The Inventories Index registered 48.7 percent. That was 4.9 percentage points lower than the 53.6 percent reported in April. An Inventories Index greater than 42.7 percent over time is generally consistent with expansion in the Bureau of Economic Analysis' (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).

The ISM Customers' Inventories Index registered 39.5 percent in May. That was 1 percentage point lower than in April when the index registered 40.5 percent. This is the 26th consecutive month the Customers' Inventories Index has been below 50 percent, indicating that respondents believe their customers' inventories are too low.

The ISM Prices Index registered 76.5 percent in May. That was 9 percentage points lower than the 85.5 percent reported in April. This is the first time the Prices Index has registered below 80 percent since December 2010, and is the 23rd consecutive month the index has registered above 50 percent. While 58 percent of respondents reported paying higher prices and 5 percent reported paying lower prices, 37 percent of supply executives reported paying the same prices as in April. A Prices Index above 49.4 percent over time is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Index of Manufacturers Prices.

ISM's Backlog of Orders Index registered 50.5 percent in May. That was 10.5 percentage points lower than the 61 percent reported in April. Of the 85 percent of respondents who reported their backlog of orders, 21 percent reported greater backlogs, 20 percent reported smaller backlogs and 59 percent reported no change from April.

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