The Manufacturing ISM was in contraction for 16 months went positive for a month and is contracting again for two months with order backlogs falling for 20 months. 
Please consider the May 2024 Manufacturing ISM® Report On Business® emphasis mine.
Economic activity in the manufacturing sector contracted in May for the second consecutive month and the 18th time in the last 19 months, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®.
The report was issued today by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee.
“U.S. manufacturing activity continued in contraction after growing in March, the first expansion for the sector since September 2022. Demand was soft again, output was stable, and inputs stayed accommodative. Demand slowing was reflected by the (1) New Orders Index dropping deeper into contraction, 2) New Export Orders Index edging back into marginal expansion, (3) Backlog of Orders Index regressing lower into contraction territory, and (4) Customers’ Inventories Index at the ‘just right’ level, neutral for future production.
The New Orders Index remained in contraction territory, registering 45.4 percent, 3.7 percentage points lower than the 49.1 percent recorded in April. The May reading of the Production Index (50.2 percent) is 1.1 percentage points lower than April’s figure of 51.3 percent. The Prices Index registered 57 percent, down 3.9 percentage points compared to the reading of 60.9 percent in April. The Backlog of Orders Index registered 42.4 percent, down 3 percentage points compared to the 45.4 percent recorded in April. The Employment Index registered 51.1 percent, up 2.5 percentage points from April’s figure of 48.6 percent.
Respondent Comments (Emphasis Mine)
- “Seems like a minor slowdown is happening. With less spending in the economy, less pressure on us for our products.” [Chemical Products]
- “Business conditions are pacing with budget and forecast for 2024. Certain markets are soft, but others are ahead of forecast, allowing us to maintain overall. Concerns with the economy continue to drive business decisions.” [Transportation Equipment]
- “Volume continues to be challenging, mostly due to inflationary impacts.” [Food, Beverage & Tobacco Products]
- “Orders have started to rebound, but inventory levels remain high enough for no impact on our supplier orders. It will take a few more strong months before supplier orders are reactivated or increased.” [Computer & Electronic Products]
- “Backlog is dwindling as we get caught up on orders; new orders are not coming in as robust as the backlog is going down. Inflation continues to be a problem with pricing of raw material and interest rates. We expect a flat rest of calendar year 2024, especially given that it’s a presidential election year.” [Machinery]
- “Export shipments continue to be soft as capital equipment sales remain lower than forecast. As a result, production is also trending lower and inventory that is not able to be pushed out is growing.” [Fabricated Metal Products]
- “Demand has been strong the first few months — ahead of budget, consistent with last year. Bookings are starting to slow down for May and June. We are monitoring this data closely to determine if it is a sign of decline or our typical cyclical demand.” [Electrical Equipment, Appliances & Components]
- “Business is picking up, with incoming bookings increasing.” [Furniture & Related Products]
- “Overall softening of markets for the month of June. Some impacts on a regional basis with the continued weather in the northeast, south and southeast regions. Delays in shipments continue across multiple regions.” [Petroleum & Coal Products]
- “General concern about overall industry economics. Pricing weakness continues, and we anticipate more headwinds in the coming months for spot orders and inflation. Contract order book remains steady.” [Primary Metals]
There are some positive comments but concerns about softening and inflation dominate.
New Orders
The New Orders Index hasn’t indicated consistent growth since a 24-month streak of expansion ended in May 2022. “Of the six largest manufacturing sectors, one (Chemical Products) reported increased new orders. Panelists indicated that the months of April and May experienced a slowing compared to the beginning of the year as housing, construction and capital expenditures activity continue to underperform,” says Fiore.
Employment
ISM®’s Employment Index registered 51.1 percent in May, 2.5 percentage points higher than the April reading of 48.6 percent. “The index indicated employment expanded after seven consecutive months of contraction. Of the six big manufacturing sectors, three (Food, Beverage & Tobacco Products; Transportation Equipment; and Chemical Products) expanded employment in May. Many Business Survey Committee respondents’ companies are continuing to reduce head counts through layoffs (which accounted for 38 percent of reduction activity, down from 50 percent in April), attrition and hiring freezes. Panelists’ comments in May indicated an increase in staff reductions compared to April. The approximately 1-to-1 ratio of hiring versus reduction comments is consistent with activity from November 2023 through March,” says Fiore. An Employment Index above 50.3 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.
Input Prices
The ISM® Prices Index registered 57 percent, 3.9 percentage points lower compared to the April reading of 60.9 percent, indicating raw materials prices increased in May for the fifth month after eight consecutive months of decreases. Of the six largest manufacturing industries, five — Machinery; Chemical Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; and Fabricated Metal Products — reported price increases in May. “The Prices Index indicated strong expansion in May, but also easing compared to the previous month. Commodity prices continue to increase, especially fuel, natural gas, aluminum and plastics. Steel is showing signs of weakness. Twenty-six percent of companies reported higher prices in May, compared to 31 percent in April,” says Fiore. A Prices Index above 52.8 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Producer Price Index for Intermediate Materials.
Order Backlogs
ISM®’s Backlog of Orders Index registered 42.4 percent, down 3 percentage points from the 45.4 percent reported in April, indicating order backlogs contracted for the 20th consecutive month after a 27-month period of expansion. Only one of the six largest manufacturing industries (Chemical Products) reported expanded order backlogs in May. “The index remained in contraction in May, as new order rates were insufficient to allow backlogs to grow,” says Fiore.
More Economic Weakening
The ISM report suggests more weakening of the economy, with a small hint of stagflation.
The ISM is a diffusion index where direction matters more than amount. For example, a firm hiring 2 people will offset another laying off 200.
This is soft data, but it is consistent with overall weakening shown in hard data.
I believe we are headed for recession this year, but we are not there yet in the first quarter.
Odds of a a recession in the second quarter are increasing.
For discussion, please see Philadelphia Fed GDPplus Revised Significantly Lower, But No Recession Yet
Shall we try a trillion every month?
A recession would be a great thing. OPEC is trying to keep oil prices high. We need demand.destruction,.layoffs and bankruptcies to spike. We need bank failures. Let’s hope Jerome makes people say uncle.
Inflation is mentioned 3 times so it got me thinking about this insightful post entitled, “America’s Piggie Banks Are Full.”
https://awealthofcommonsense.com/2024/06/americas-piggie-banks-are-full/
“Households have added roughly $12 trillion in home equity since the end of 2019″
“Money market funds have gone from around $3.5 trillion before the pandemic to $6 trillion now”
“There has been a similar rise in the amount of money people hold in checking accounts..That’s another $4 trillion, which was only around $1 trillion just before the pandemic.”
$12 trillion is a LOT of equity to cash out when interest rates get cut and I am 99% sure that there will be lots of people tapping that home equity when rates go back down. That type of cash floating around post fed cut(s) will cause inflation to spike again.
It’s the 1970s-80s paradigm all over again. Prepare accordingly.
Cheering a housing bubble is just gross. Shame
Who is cheering a housing bubble? I pointed out data that there is currently $12 trillion in home equity and it’s likely the American consumer will want to tap and spend that money.
And if you know me, you know I have been sitting on the sidelines for 3 years waiting to buy more rental units but the values are insane. I’ve been rolling T-bills for that long now, heck I have all the treasury action dates committed to memory now. lol.
The equity is as real as the girl in Total Recall with three ti.ts. How real was that equity in 2007?
2007 was filled with loan fraud, is that what you think has happened to housing now? Housing will correct but it won’t correct to prices from 17 years ago, those days are gone.
You aren’t saying much with 25% depreciation of our currency in the last 4 years. Home equity loans running near 10% in most places. No one is taking that out. Nor should they.
Then re-read what I wrote, “$12 trillion is a LOT of equity to cash out when interest rates get cut.…”
Don’t waste your breath. Mish has decided to cater to the apocalyptic rant crowd at this point and so no matter what factual information you present, it’ll be interpreted the same way – the sky is falling.
They are if they’re planning to use it to pay off credit cards with 15-23% interest rates,
Interesting take. Maybe all these funds are holding up the markets and holding back any recession.
I dunno it Jerome is gonna dance. He said he remembers the hikes of the 70s before Volcker and why Volcker was necessary to hike rates further.
“…when rates go back down.”
not in our lifetime. ‘Higher For Longer’ is the new old normal.
There are no markets…just manipulations
The wholesale rejection of the USD will reset everything
Deeply troubling numbers
WE have been in a RECESSION for some time Now . . . the Statistics are fudged . . .
as odds of an “official” recession increase, so do the odds of our proxy wars becoming full-blown direct wars.
looking at the data qualitatively, the ‘growth’ components include massive political spending/support such as “climate” & “equity” grants, migrant support services, and weapons systems.
NGOs & The Pentagon are the Swamp’s true constituencies, and the data reflects this in spades.
“climate” & “equity” grants, migrant support services, and weapons systems… setting fire to piles of cash is more productive, as by-standers might benefit from the heat in winter.
and today we get………… “NYSE Glitch Halts About a Dozen Stocks In Error”Read the articles that are out there at the moment (I wouldn’t put trust in their words though). This looks like more of the same massive manipulation we have seen from the financial class of criminals that dictate many of the circumstances for our pimped out nation. If the statue of liberty were a living person, she be a pimped-out scantily clad crack whore carrying a crack pipe torch turning cheap tricks for a daily fix while her handlers laugh at her from down the Wall Street block.
organic volatility has been impossible for decades.
market “controls” are programmed to ELIMINATE negative inputs. OTOH, positive inputs are artificially amplified by those same market “controls”.
US markets are – technically-speaking – fiction.
Don’t worry, AI to the rescue. Will be able to identify and fix glitches in real time. Heck, for the investment and power consumption, it should be able to forestall them.
“The ISM Manufacturing Report On Business® … developed in 1982 with the U.S. Department of Commerce.” Say no more.