In a move foreshadowed by earlier reports from regions around the US, the May Composite Index of activity in the manufacturing sector compiled by the Institute of Supply Management fell another 1.9 points to 51.4. The index has fallen steadily from the peak of 62.8 in January 2004. Consensus expectations had been for a lesser decline to 52.5.

During the last twenty years there has been a 64% correlation between the level of the Composite Index and the three month growth in factory sector industrial production.

A lower new orders (51.7) component led the composite down for the fourth month this year while the index of export orders (54.9) fell to its lowest since September.

The employment index (48.8) fell below the break even level of 50 for the first month since October 2003. During the last twenty years there has been a 67% correlation between the level of the ISM Employment Index and the three month growth in factory sector employment.

The production index (54.9) fell to its lowest since June 2003 and the pace of vendor deliveries sped up to the quickest in nearly two years.

The prices paid index fell sharply to the lowest since October 2003. During the last twenty years there has been an 81% correlation between vendor delivery speed and prices.