Please consider the May 2023 Manufacturing ISM® Report On Business® by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management® (ISM®).
“The May Manufacturing PMI® registered 46.9 percent, 0.2 percentage point lower than the 47.1 percent recorded in April. Regarding the overall economy, this figure indicates a sixth month of contraction after a 30-month period of expansion.
“The U.S. manufacturing sector shrank again, with the Manufacturing PMI® losing a bit of ground compared to the previous month, indicating a faster rate of contraction. The May composite index reading reflects companies continuing to manage outputs to better match demand for the first half of 2023 and prepare for growth in the late summer/early fall period. However, there is clearly more business uncertainty in May. Demand eased again, with the (1) New Orders Index contracting at a faster rate, (2) New Export Orders Index slightly improving to 50 percent, (3) Customers’ Inventories Index persisting at the low end of ‘too high’ territory, a negative for future production and (4) Backlog of Orders Index dropping to a level not seen since the Great Recession.
Spotlight Prices
The ISM® Prices Index registered 44.2 percent, 9 percentage points lower compared to the April reading of 53.2 percent, indicating raw materials prices decreased in May. The index fell dramatically back into contraction (or “decreasing”) territory after one month in expansion. “Panelists’ comments support a more balanced supplier-buyer relationship, as sellers are more concerned about filling order books to support their backlogs. Of the top six manufacturing industries, three (Machinery; Petroleum & Coal Products; and Transportation Equipment) reported price increases in May. Eighty-five percent of panelists’ companies reported ‘same’ or ‘lower’ prices in May, compared to 74 percent in April,” says Fiore. A Prices Index above 52.9 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Producer Price Index for Intermediate Materials.
In May, five industries reported paying increased prices for raw materials: Textile Mills; Nonmetallic Mineral Products; Machinery; Petroleum & Coal Products; and Transportation Equipment. The 10 industries reporting paying decreased prices for raw materials in May — in the following order — are: Wood Products; Primary Metals; Paper Products; Printing & Related Support Activities; Plastics & Rubber Products; Chemical Products; Food, Beverage & Tobacco Products; Computer & Electronic Products; Fabricated Metal Products; and Electrical Equipment, Appliances & Components.
My Comments on Backlogs, Production, and Employment
The backlog of orders recorded its lowest level since February 2009, when it registered 33.6 percent.
With the backlog of orders collapsing, and new orders dropping, the rise in employment and production is either a diffusion index mirage or something that cannot last.
Diffusion Index Comments
The ISM is a diffusion index, signaling direction not amount. For example a firm hiring 10 workers and a firm laying off 200 workers balances out.
And there is a survival bias and a weighting bias.
Chicago PMI Crashes to 40, the 9th Straight Month of Contraction
Yesterday, I noted Chicago PMI Crashes to 40, the 9th Straight Month of Contraction
The Chicago PMI is a mixture of manufacturing and services.
Gross Domestic Income GDI Suggests the US Is in Recession Right Now
Gross Domestic Product (GDP) and Gross Domestic Income (GDI) are two measures of the same thing. They are wildly different with GDP indicating growth and GDI indicating recession.
For discussion, please see Gross Domestic Income GDI Suggests the US Is in Recession Right Now
This post originated on MishTalk.Com.
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Mish
in Florida and we’re entering a whole new paradigm. The funny thing is
that it will only get WORSE not better over the next 7 years as 40
million people hit 65+ and go on the dole.”