U.S. Manufacturing Activity Improves Unexpectedly in May

The Institute for Supply Management (ISM) reported that its Composite Index of Manufacturing Sector Activity rose to 56.1 during May after falling to 55.4 in April. A decline to 54.5 had been expected in the Action Economics Forecast Survey. Despite the rise, the index remained down from the high of 63.7 last March. During the last 15 years, there has been a 42% correlation between the composite index and the quarterly change in real GDP.

Leading the improvement in the component series was the inventory index which surged to 55.9 from 51.6. It was the highest level in six months. An increase in the new orders index followed with a rise to 55.1 after falling to 53.5 in April. Twenty-eight percent (NSA) of respondents reported higher new orders versus 25.1% during April, but 13.3% reported a decline versus 10.9% a month earlier. Rounding out the gains, the production index edged higher to 54.2 last month after falling to 53.6 in April. It remained below the March 2021 high of 66.4.

Countering these increases, the employment index declined from 50.9 in April to 49.6 in May. Below the break-even level of 50, it was the lowest level since November 2020. An increased 22.8% (NSA) of respondents reported a decline in jobs in May versus 17.1% in April, while 21.8% reported more hiring versus 21.0% in April.

Also falling was the supplier delivery series. It fell to 65.7 after rising to 67.2 in April. It thus suggested quicker product delivery speeds.

The prices paid index declined to 82.2 last month after falling to 84.6 in April. It was below the high of 92.1 in June 2021. Seventy percent (NSA) of respondents reported higher prices versus 73.5% in April, while 5.6% reported price declines compared to 4.4% in April.

In other ISM series not included in the composite, the new export measure was little-changed at 52.9. It reached a recent high of 57.1 in February. The imports index fell to 48.7 from 51.4 in April. It was down from a high of 55.4 in February.

The ISM figures are based on responses from over 400 manufacturing purchasing executives from 20 industries, which correspond to their contribution to GDP in 50 states. These data are diffusion indexes where a reading above 50 indicates expansion. The figures from the Institute for Supply Management can be found in Haver's USECON database; further detail is found in the SURVEYS database. The expectations number is available in Haver's AS1REPNA database.