U.S. Manufacturing Increases In May

By John S. McClenahen Surprising some economists, but not most manufacturing executives, the manufacturing sector of the U.S. economy grew faster last month than in May. Data released June 1 by the Institute for Supply Management (ISM), Tempe, Ariz., showing its PMI index rising to 62.8% in May from 62.4% in April. A figure above 50% indicates that manufacturing generally is expanding; a number below 50% signals that the sector is contracting. "It appears that second-quarter growth will be very solid, and the momentum should carry over into the second half of the year," says Norbert J. Ore, chairperson of ISM's manufacturing business survey committee and group director of strategic sourcing and procurement at Georgia Pacific Corp. But the data also suggest such optimistic forecasts need to be conditioned with a bit a caution. For example, both new orders and production declined from April to May. The new orders element of the ISM fell 2.2 percentage points to 62.8% in May from 65% in April, and the production component of the index slipped 2.2 percentage points to 64.8% from 67%. Manufacturers responding to ISM's latest survey also expressed "major concerns" about rising materials prices, especially the higher cost of energy. In contrast, the employment element of the PMI grew for the seventh consecutive month, rising to 61.9% in May from 57.8% in April as factories hired permanent employees as well as temporary and seasonal workers. "The employment subindex was the highest since 1973, hinting that companies have enough confidence to continue hiring despite concerns over high energy prices," says UBS Investment Research, New York. Also on June 1, the U.S. Commerce Department reported that public and private construction put in place during April was at a seasonally adjusted annual rate of $970.4 billion, 1.3% higher than the revised March rate of $957.6 billion. Public construction was at an annual rate of $230.5 billion, up 1.7% from March's rate. Private construction, which includes factories, was at an annual rate of $739.9 billion, up 1.2% from March's rate, but, says UBS, "uneven." While outlays for factories and power plants continued their downward trends, "the decline in multi-family [housing] was new and may foreshadow the first whiff of weakening in the housing sector," notes UBS.

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