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ISM: Manufacturing Contracting at a Slower Rate as Economy Reopens

June 1, 2020
The Institute for Supply Management’s Manufacturing PMI rose 1.6 points to 43.1% in May.

Manufacturing continued to contract through May, albeit at a slower pace than before, according to the Institute for Supply Management. The ISM’s Purchasing Manager’s Index rose to 43.1% from 41.5% in April. “This figure indicates expansion in the overall economy after April’s contraction, which ended a period of 131 consecutive months of growth,” wrote ISM President Timothy Fiore.

The index for new orders rose to 31.8%, an increase of 4.7 points from April. The production index registered 33.2%, up 5.7%, the employment index read 32.1%, almost 5 points up compared to April, and the prices index rose 5.5 points to 40.8%. The imports index fell 1.4 points to 41.3%. An index rating below 50% indicates contraction.

The manufacturing PMI plunged 7.6 from March to April in its steepest fall since the 2008/2009 financial crisis. May marks a third month during which the manufacturing market shrank, along with the third month of production contraction. New orders fell for the fourth month running, and in a sobering statistic for manufacturing talent, the manufacturing employment index notched a tenth month of contraction. While the general, production, new orders, and employment index are all contracting slower than they did in April, the imports index, on its fourth week of contraction, is shrinking faster.

Surveyed manufacturing executives were cautious, as they had been last month, but hailed signs of improvement. “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,” said a quoted computer & electronics CEO. A CEO in the nonmetallic mineral products industry said they saw “a lot of positive signs, despite what’s going on. … There is good optimism out there.”

The ISM surveys 18 manufacturing industries. Six of those sectors reported growth in May: nonmetallic mineral products; apparel, leather, and allied products; food, beverage, and tobacco products; paper products; and wood products. Food, beverage and tobacco products, considered one of the “big six industries” by ISM, is the only one of the big industries to report growth.

Printing and related support activities contracted the most of sectors surveyed, followed by the primary metals and transportation equipment segments. A surveyed CEO at a chemical products company reported that his business results were being negatively impacted by conditions in automotive, construction, oil and gas, agriculture equipment, and tube or pipe markets.

The coronavirus pandemic has also weighed on the pricing and availability of supplies. Prices for articles of personal protective equipment, or PPE, rose for the second month running, with the price of gloves rising for a third month. Alcohols, disinfectant soaps and wipes, hand sanitizer, N95 respirators, gloves, and masks were all listed as “commodities in short supply.” Setting up sanitizing stations and requiring employees to wear PPE are common safety procedures for reopening factories as the US economy tentatively returns to normal following sweeping quarantine orders.

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