The ISM Report on Business, released on June 2, showed that the manufacturing sector contracted for the third consecutive month. This follows a two-month expansion preceded by 26 straight months of contraction.
The Manufacturing PMI registered 48.5% in May, 0.2 percentage point lower compared to the 48.7% recorded in April.
The overall economy continued in expansion for the 61st month after one month of contraction in April 2020.
Susan Spence, MBA, Chair of the Institute for Supply Management, offered the following analysis:
- "Demand indicators were mixed, with the New Orders and Backlog of Orders indexes contracting at slower rates, while the Customers' Inventories and New Export Orders indexes contracted more strongly. However, a 'too low' status for the Customers' Inventories Index is usually considered positive for future production.
- "Regarding output, the Production Index increased from an alarmingly low reading the previous month, but factory output continued to contract in May, indicating that panelists' companies are still revising production plans downward amid economic uncertainty. The Employment Index ticked up for a second consecutive month but remained in contraction, as head-count reductions continued. Companies generally opted for layoffs because they are quicker to implement than attrition.
- "Finally, inputs are defined as supplier deliveries, inventories, prices and imports. The Inventories Index, as expected, entered contraction territory after expanding as companies completed pull-forward activity ahead of tariffs, while the Supplier Deliveries Index indicated continuing slow performance, reflecting ongoing delays in clearing goods through ports of entry. Tariffs-induced prices growth slowed slightly, while the Imports Index contracted significantly, down 7.2 percentage points compared to April.
index information is as follows:
Supplier Deliveries Index indicated a continued slowing of deliveries, registering 56.1%, 0.9 percentage point higher than the 55.2% recorded in April.
Inventories Index registered 46.7%, down 4.1 percentage points compared to April's reading of 50.8%.
Imports Index plunged into extreme contraction in May, registering 39.9 %, 7.2 percentage points lower than April's reading of 47.1%
New Export Orders Index reading of 40.1% is 3 percentage points lower than the reading of 43.1 percent registered in April.
New Orders Index contracted for the fourth month in a row following a three-month period of expansion; the figure of 47.6% is 0.4 percentage point higher than the 47.2% recorded in April.
Production Index registered 45.4%, higher by 1.4 percentage points higher than April's figure of 44%. The index continued in contraction in March for the third straight month after two months of expansion preceded by eight months of contraction.
Prices Index remained in expansion territory, registering 69.4% down 0.4 percentage point compared to the reading of 69.8% in April.
Backlog of Orders Index registered 47.1%, up 3.4 percentage points compared to the 43.7% recorded in April.
Employment Index registered 46.8%, up 0.3 percentage point from April's figure of 46.5%.
What Respondents are saying:
- "There is continued softening of demand in the commercial vehicle market, primarily related to higher prices and economic uncertainty. The impact of ever-changing trade policies of the current administration has wreaked havoc on suppliers' ability to react and remain profitable. Vehicle manufacturers have already rolled price increases into their products to protect their bottom lines but have not been as cooperative with their supply bases. This has resulted in a high occurrence of suppliers falling into financial distress." [Transportation Equipment]
- "Tariffs, avian influenza and broader commodity markets continue to impact business conditions. The volatility of all three makes business planning and overall conditions challenging." [Food, Beverage & Tobacco Products]
- "Government spending cuts or delays, as well as tariffs, are raising hell with businesses. No one is willing to take on inventory risk." [Computer & Electronic Products]
- "Most suppliers are passing through tariffs at full value to us. The position being communicated is that the supplier considers it a tax, and taxes always get passed through to the customer. Very few are absorbing any portion of the tariffs." [Chemical Products]
- "Tariff uncertainty is impacting new international orders. Tariffs are also the main reason our Asia customers are requesting delayed shipments." [Fabricated Metal Products]
- "There is continued uncertainty regarding market reaction to the recently imposed tariffs and resulting actions by other countries. The rare earth restrictions being imposed are of high concern in the near term." [Machinery]
- "The administration's tariffs alone have created supply chain disruptions rivaling that of COVID-19." [Electrical Equipment, Appliances & Components]
- "We have entered the waiting portion of the wait and see, it seems. Business activity is slower and smaller this month. Chaos does not bode well for anyone, especially when it impacts pricing." [Primary Metals]
- "Tariff whiplash continues while the easing of tariff rates between the U.S. and China in May was welcome news, the question is what happens in 90 days. We are doing extensive work to make contingency plans, which is hugely distracting from strategic work, plus it is also very hard to know what plans we should actually implement. The 10-percent tariff on other countries is impactful as well, and it is unclear if/when deals will be made." [Miscellaneous Manufacturing]
- "Uncertainty due to the recent tariffs continue to weigh on profitability and service. An unresolved (trade deal with) China will result in empty shelves at retail for many do-it-yourself and professional goods." [Paper Products]
