May 2020 Manufacturing ISM Report On Business: Production, New Orders, Backlog, and Employment Contracting

Author photo: Steve Clouther
BySteve Clouther
Category:
Industry Trends

The Manufacturing ISM Report On Business is published monthly by the Institute for Supply Management (ISM), the largest supply management organization in the world, as well as one of the most respected.  Economic activity in the manufacturing sector contracted in May, and the overall economy returned to expansion after one month of contraction, say the nation's supply executives in the latest Manufacturing ISM Report On Business.

Manufacturing ISM Report

Manufacturing contracted in May, as the PMI registered 43.1 percent, 1.6 percentage points higher than the April reading of 41.5 percent.  The PMI contracted strongly in April and May after dropping below 50 percent in March.  The PMI recorded its second-lowest level since April 2009, when it registered 39.9 percent.

ISM’s New Orders Index registered 31.8 percent in May, an increase of 4.7 percentage points compared to the 27.1 percent reported in April.  This indicates that new orders contracted for the fourth consecutive month.  This is the index’s second-lowest reading since December 2008, when it registered 25.9 percent.

The Production Index registered 33.2 percent in May, indicating that production contracted for the third straight month.  This is the second-lowest figure since January 2009, when the index registered 32.3 percent.  For the second straight month, Food, Beverage & Tobacco Products was the only top-six industry sector that expanded, with the others contracting strongly due to a lack of new orders and labor available to convert material.

ISM’s Employment Index registered 32.1 percent in May, 4.6 percentage points higher than the April reading of 27.5 percent.  This is the index’s second-lowest reading since March 2009, when it registered 30.5 percent.  This is the 10th consecutive month of employment contraction, but at a slower rate compared to April.  All six big industry sectors experienced strong employment contraction as a result of furloughs and layoffs due to a lack of new orders and stay-at-home directives.

The delivery performance of suppliers to manufacturing organizations was slower in May, as the Supplier Deliveries Index registered 68 percent.  This is 8 percentage points lower than the 76 percent reported in April.  The reading is the index’s second highest since June 2018 (68.2 percent), and the percentage-point decrease is the largest since an 8.2-point drop in October 1981.

The Inventories Index registered 50.4 percent in May, 0.7 percentage point higher than the 49.7 percent reported for April.  Inventories expanded for the first time since May 2019, when the index registered 51.4 percent.  The index grew after 11 straight months of contraction.

The ISM Prices Index registered 40.8 percent, 5.5 percentage points higher than the April reading of 35.3 percent, indicating raw materials prices decreased for the fourth consecutive month, and at a slower rate in May.

ISM’s Backlog of Orders Index registered 38.2 percent in May, a 0.4 percentage point increase compared to the 37.8 percent reported in April, indicating order backlogs contracted for the third consecutive month.  Notwithstanding April's figure, this is the index’s lowest reading since March 2009 (37.6 percent).

Of the 18 manufacturing industries, the six that reported growth in May — in the following order — are: Nonmetallic Mineral Products; Furniture & Related Products; Apparel, Leather & Allied Products; Food, Beverage & Tobacco Products; Paper Products; and Wood Products.  The 11 industries reporting contraction in May, in order, are: Printing & Related Support Activities; Primary Metals; Transportation Equipment; Petroleum & Coal Products; Fabricated Metal Products; Machinery; Miscellaneous Manufacturing; Electrical Equipment, Appliances & Components; Chemical Products; Computer & Electronic Products; and Plastics & Rubber Products.

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