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May Manufacturing Report: Growth Overall, But Supplies Tight
June 2, 2010 |Estimated reading time: 6 minutes
TEMPE, AZ — Economic activity in the manufacturing sector expanded in May for the 10th consecutive month, and the overall economy grew for the 13th consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report On Business.
Transportation Equipment; Electrical Equipment, Appliances & Components; Fabricated Metal Products; Computer & Electronic Products; and Machinery all grew during the month. "Tight supply conditions exist for electronic components," according to Computer & Electronic Products respondents. "No signs of the ramp-up abating anytime soon," added the Machinery sector. "Aftermarket sales increased 25% during the past quarter," according to respondents from the Transportation Equipment industry.
"The manufacturing sector grew for the 10th consecutive month during May. The rate of growth as indicated by the PMI is driven by continued strength in new orders and production. Employment continues to grow as manufacturers have added to payrolls for six consecutive months. The recovery continues to broaden as 16 of 18 industries report growth. There are a number of reports, particularly in the tech sector, of shortages of components; this is the result of excessive inventory de-stocking during the downturn," Norbert J. Ore, CPSM, C.P.M., chair of the Institute for Supply Management Manufacturing Business Survey Committee
Manufacturing continued to grow in May as the PMI registered 59.7%, a decrease of 0.7 percentage point when compared to April's reading of 60.4%. A reading above 50% indicates that the manufacturing economy is generally expanding; below 50% indicates that it is generally contracting.
A PMI in excess of 42%, over a period of time, generally indicates an expansion of the overall economy. Therefore, the PMI indicates growth for the 13th consecutive month in the overall economy, as well as expansion in the manufacturing sector for the 10th consecutive month. Ore stated, "The past relationship between the PMI and the overall economy indicates that the average PMI for January through May (58.9%) corresponds to a 5.7% increase in real gross domestic product (GDP). In addition, if the PMI for May (59.7%) is annualized, it corresponds to a 6% increase in real GDP annually."
New Orders
ISM's New Orders Index registered 65.7% in May, which is the same rate of growth reported for the preceding month. This is the 11th consecutive month of growth in the New Orders Index. A New Orders Index above 50.2%, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders (in constant 2000 dollars). Electrical Equipment, Appliances & Components; Fabricated Metal Products; Miscellaneous Manufacturing; Transportation Equipment; Computer & Electronic Products; and Machinery are among the sectors reporting a growth in new orders.
Production
ISM’s Production Index registered 66.6% in May, which is a decrease of 0.3 percentage point from the April reading of 66.9%. An index above 51%, over time, is generally consistent with an increase in the Federal Reserve Board's Industrial Production figures. This is the 12th consecutive month the Production Index has registered above 50%.
The 15 industries reporting growth in production during the month of May include Electrical Equipment, Appliances & Components; Transportation Equipment; Computer & Electronic Products; Miscellaneous Manufacturing; and Machinery.
Employment
ISM's Employment Index registered 59.8% in May, which is 1.3 percentage points higher than the 58.5% reported in April. This is the sixth consecutive month of growth in manufacturing employment. An Employment Index above 49.8%, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.
Employment in May grew for Transportation Equipment; Machinery; Computer & Electronic Products; Electrical Equipment, Appliances & Components; and Miscellaneous Manufacturing, among others.
Supplier Deliveries
The delivery performance of suppliers to manufacturing organizations was slower in May as the Supplier Deliveries Index registered 61%, which is 0.3 percentage point lower than the 61.3% registered in April. This is the 12th consecutive month the Supplier Deliveries Index has been above 50%. A reading above 50% indicates slower deliveries.
Industries reporting slower supplier deliveries in May include Electrical Equipment, Appliances & Components; Transportation Equipment; Miscellaneous Manufacturing; Machinery; and Computer & Electronic Products.
Inventories
Manufacturers' inventories contracted in May for the second consecutive month as the Inventories Index registered 45.6%. The index is 3.8 percentage points lower than the April reading of 49.4%. An Inventories Index greater than 42.6%, over time, is generally consistent with expansion in the Bureau of Economic Analysis' (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).
Higher inventories were reported in May from Computer & Electronic Products; Transportation Equipment; and others. Miscellaneous Manufacturing; Electrical Equipment, Appliances & Components; and Machinery reported lower inventories.
Customers' Inventories
The ISM Customers' Inventories Index registered 32% in May, 1 percentage point lower than in April when the index registered 33%, and the 14th consecutive month the Customers' Inventories Index has been below 50%. The index indicates that respondents believe their customers' inventories are too low at this time.
Prices
The ISM Prices Index registered 77.5% in May, 0.5 percentage point lower than the 78% reported in April. This is the 11th consecutive month in which the Prices Index has registered above 50%. While 60% of respondents reported paying higher prices and 5% reported paying lower prices, 35% of supply executives reported paying the same prices as in April. A Prices Index above 49.3%, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Index of Manufacturers Prices. There were no industry reports of paying lower prices on average during May.
Backlog of Orders
ISM's Backlog of Orders Index registered 59.5% in May, 2 percentage points higher than the 57.5% reported in April. Of the 85% of respondents who reported their backlog of orders, 30% reported greater backlogs, 11% reported smaller backlogs, and 59% reported no change from April.
The industries reporting increased order backlogs in May include Electrical Equipment, Appliances & Components; Fabricated Metal Products; Transportation Equipment; Printing & Related Support Activities. Decreases in order backlogs during May occurred for Miscellaneous Manufacturing and Computer & Electronic Products sectors.
New Export Orders
ISM's New Export Orders Index registered 62% in May, 1 percentage point higher than the 61% reported in April. This is the 11th consecutive month of growth in the New Export Orders Index.
Growth in new export orders in May was reported for Electrical Equipment, Appliances & Components; Transportation Equipment; and Miscellaneous Manufacturing.
Imports
Imports of materials by manufacturers expanded in May as the Imports Index registered 56.5%, 1.5 percentage points lower than the 58% reported in April. This is the ninth consecutive month of growth in imports.
Electrical Equipment, Appliances & Components; Fabricated Metal Products; Transportation Equipment; Machinery; and Miscellaneous Manufacturing grew imports. The only industry reporting a decrease in imports during May is Computer & Electronic Products.
Buying Policy
Average commitment lead time for Capital Expenditures decreased 1 day to 106 days. Average lead time for Production Materials decreased 2 days to 48 days. Average lead time for Maintenance, Repair and Operating (MRO) Supplies increased 1 day to 23 days.
The data presented herein is obtained from a survey of manufacturing supply managers based on information they have collected within their respective organizations. ISM makes no representation, other than that stated within this release, regarding the individual company data collection procedures. Use of the data is in the public domain and should be compared to all other economic data sources when used in decision-making. The full text version of the Manufacturing ISM Report On Business is posted at www.ism.ws
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