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Economy Moves to Expansion While Manufacturing Still Contracting
Economy Moves to Expansion While Manufacturing Still Contracting
Economy Moves to Expansion While Manufacturing Still Contracting
Economy Moves to Expansion While Manufacturing Still Contracting
Economy Moves to Expansion While Manufacturing Still Contracting

Economy Moves to Expansion While Manufacturing Contraction Improves

June 2, 2020
May is a transition month, as many suppliers returned to work late in the month; however, demand remains uncertain.

ISM’s latest report, released on June 1, showed the May PMI registered 43.1%t, up 1.6 percentage points from the April reading of 41.5%. This figure indicates expansion in the overall economy after April’s contraction, which ended a period of 131 consecutive months of growth.

As was the case in April, the PMI indicates a level of manufacturing-sector contraction not seen since April 2009; however, the trajectory improved. 

“The coronavirus pandemic impacted all manufacturing sectors for the third straight month,” said Timothy R. Fiore, Chair of the Institute for Supply Management. ”May appears to be a transition month, as many panelists and their suppliers returned to work late in the month. However, demand remains uncertain, likely impacting inventories, customer inventories, employment, imports and backlog of orders.”

Specific Index readings were as follows:

  • The New Orders Index registered 31.8%, an increase of 4.7 percentage points from the April reading of 27.1%.
  • The Production Index registered 33.2%, up 5.7 percentage points compared to the April reading of 27.5%.
  • The Backlog of Orders Index registered 38.2%, an increase of 0.4 percentage points compared to the April reading of 37.8%.
  • The Employment Index registered 32.1%, an increase of 4.6 percentage points from the April reading of 27.5%.
  • The Supplier Deliveries Index registered 68%; though down 8 percentage points from the April figure of 76%, this high reading elevated the composite PMI.
  • “The Inventories Index registered 50.4%, 0.7 percentage point higher than the April reading of 49.7%.
  • --The Prices Index registered 40.8%, up 5.5 percentage points compared to the April reading of 35.3%.
  • The New Export Orders Index registered 39.5%, an increase of 4.2 percentage points compared to the April reading of 35.3%.
  • The Imports Index registered 41.3%, a 1.4-percentage point decrease from the April reading of 42.7%.

“Three months into the manufacturing disruption caused by the coronavirus (COVID-19) pandemic, comments from the panel were cautious (two cautious comments for every one optimistic comment) regarding the near-term outlook,” said Fiore.

 As was the case in April, the PMI indicates a level of manufacturing-sector contraction not seen since April 2009; however, the trajectory improved. 

Demand contracted heavily again, with the (1) New Orders contracting at a strong level, again pushed by New Export Orders contraction; both indexes contracted at slower rates, (2) Customers’ Inventories Index returning to a level considered a positive for future production, and (3) Backlog of Orders Index remaining in strong contraction territory, in spite of weak production during the period. 

Consumption (measured by the Production and Employment indexes) contributed positively (a combined 10.3-percentage point increase) to the PMI calculation, with many panelists classified as non-essential beginning to return to work in late May.

Inputs — expressed as supplier deliveries, inventories and imports — strengthened again due to supplier delivery issues that were partially offset by continuing import sluggishness. The delivery issues were the result of disruptions in domestic and global supply chains, driven primarily by supplier plant shutdowns. Inventory expanded due to issues with throughput and demand weakness. Inputs contributed negatively (a combined 7.3-percentage point decrease) to the PMI calculation. (The Supplier Deliveries and Inventories indexes directly factor into the PMI the Imports Index does not.) Prices continued to contract (but at a slower rate in May), supporting a negative outlook.

“The coronavirus pandemic impacted all manufacturing sectors for the third straight month. May appears to be a transition month, as many panelists and their suppliers returned to work late in the month.

What Respondents are Saying

--Despite the COVID-19 issues, we are seeing an increase of quoting activity. This has not turned into orders yet, but it is a positive sign.” (Computer & Electronic Products)

-- “Current conditions in the automotive, construction, oil and gas, agriculture equipment, and tube/pipe markets are all adversely impacting our business results.” (Chemical Products)

-- “We see an issue with suppliers that are affecting production. At the same time, social distancing measures in [the] manufacturing plant and customer demand are impacting the rate of production.” (Transportation Equipment)

--"Increased COVID-19 sales in the food business has really stressed our production capabilities.” (Food, Beverage & Tobacco Products)

-- “Fuel sales demand are beginning to rebound in May as stay-at-home orders are lifted across the country.” (Petroleum & Coal Products)

--“Returning to full production for automotive, ramp-up will still depend on the speed of automotive start-ups. We have built up inventory to stock. Ready to ship.” (Fabricated Metal Products)

--“Business activity remains strong for consumable applications and very weak in durable segments.” (Plastics & Rubber Products)

--We have been fortunate that most of our customer base is considered to be a part of the critical workforce, so we have been running at around 80 percent of our normal production volume.” (Primary Metals)

--“Getting out from under several suppliers being closed worldwide. Also, looking at what really needs to be in China.” (Machinery)

--“We see a lot of positive signs, despite what's going on. People seem to continue to be building and looking to projects for Fall of 2020 and beyond. There is good optimism out there.” (Nonmetallic Mineral Products)

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