ISM Shows Unexpected Contraction in May National Manufacturing Level

The Institute for Supply Management has released its national manufacturing data for the month of May. Monday’s report is very soft at only 49.0% and is a disappointment, considering that last week’s data was stronger than expected in the regional manufacturing data and in consumer confidence data. Bloomberg had a consensus reading of 51.0%, versus an April reading of 50.7%. Bloomberg’s range of estimates was 49.0% to 52.5%.

A general description was that new orders, production and inventories were contracting. Employment actually rose, and supplier deliveries were coming in faster as well. Today’s report is a decrease of 1.7 percentage points from April’s reading of 50.7%, and its reading under 50.0% also represents contraction rather than expansion.

This is the first report showing a contraction in manufacturing since November 2012, and it represents only the second contraction since July 2009. Another negative was that the Purchasing Managers Index is now at its lowest level since June 2009. The only good news here is that the prior post-cycle low was all the way down at 45.8%. Here are some component notes:

  • New Orders Index decreased in May by 3.5 percentage points to 48.8%.
  • Production Index decreased by 4.9 percentage points to 48.6%.
  • Employment Index registered 50.1%, a slight decrease of 0.1 percentage point compared to April’s reading of 50.2%.
  • Prices Index registered fell 0.5 points to 49.5% as overall raw materials prices decreased.
  • Several panel comments indicate a flattening or softening in demand due to a sluggish economy, both domestically and globally.

The ISM surveys more than 300 manufacturing firms for this monthly report and targets issues on employment, production, new orders, supplier deliveries and inventories.

Weaker manufacturing data sounds bad on the surface. For stocks it may actually be deemed as good news because this takes the pressure off of the Federal Reserve to start tapering asset purchases sooner than expected.

Stocks are still trying to find their footing. The S&P 500 is bouncing around at plus or minus a point but the SJIA is up about 55 points.