U.S. manufacturing activity improves slightly more than forecast in May - ISM

A report from the Institute for Supply Management (ISM) showed on Monday the U.S. manufacturing sector’s activity contracted in May, albeit at a slower pace than in April.

The ISM's index of manufacturing activity came in at 43.1 percent last month, up 1.6 percentage points from the April reading of 41.5 percent, which was the lowest since April 2009. Economists' had forecast the indicator to increase to 43.0 percent.

A reading above 50 percent indicates expansion, while a reading below 50 percent indicates contraction.

According to the report, the New Orders Index stood at 31.8 percent, an advance of 4.7 percentage points from the April reading, while the Production Index registered 33.2 percent, up 5.7 percentage points compared to the April reading, the Backlog of Orders Index posted 38.2 percent, a gain of 0.4 percentage point compared to the April reading, and the Employment Index came in at 32.1 percent, an increase of 4.6 percentage points from the April reading. Meanwhile, the Supplier Deliveries Index registered 68 percent, down 8 percentage points from the April figure, still elevating the composite PMI.

Timothy R. Fiore, Chair of the ISM Manufacturing Business Survey Committee, noted that comments from the panel were cautious regarding the near-term outlook, as 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. However, demand remains uncertain, likely impacting inventories, customer inventories, employment, imports and backlog of orders. Among the six biggest industry sectors, Food, Beverage & Tobacco Products remains the only industry in expansion. Transportation Equipment; Petroleum & Coal Products; and Fabricated Metal Products continue to contract at strong levels,” said Fiore. He also added that the past relationship between the PMI and the overall economy indicates that the PMI for May (43.1 percent) corresponded to a 0.1-percent increase in real gross domestic product (GDP) on an annualized basis.