May 2018 Manufacturing ISM PMI: 21 Straight Months of Growth

With continued United States economic and manufacturing industry growth, the May 2018 Manufacturing Institute of Supply Management (ISM) Report on Business paints the picture of a bright future for the overall economy as well as the industry. In fact, it shows the economy having seen its 109^th month of continued growth in May while the manufacturing industry grew for the 21^st consecutive month. The industry increased 1.4% with the Purchasing Manager’s Index (PMI) reaching 58.7% to beat April’s 57.3%. Responses to the May survey also reflected positivity as 16 of 18 manufacturing industries reported growth. In addition, “No industry reported a decrease in PMI^® in May compared to April.” But what was behind this growth?

Positive trends

In May, all Indexes with positive percentage point changes showed faster growth except for Supplier Deliveries, which was slowing faster. In addition, Prices were increasing at a faster rate.

• The New Orders Index rose to 63.7%, up 2.5% since April. This Index has continued to grow over the course of the last 29 months. It points toward positive trends in the demand for manufactured products.
• The Production Index increased to 61.5%, up 4.3% since April’s report of 57.2%. The Production Index has been growing for 21 months straight. The ability to meet demand as new order numbers increase will be necessary to continue keeping the industry healthy.
• Employment numbers also continued to grow for the 20^th consecutive month, reaching 56.3%, up 2.1% from April. This was despite manufacturers’ continued difficulties in hiring skilled laborers. The overall health of and growth in the industry has made hiring additional workers not only viable but ultimately necessary.
• The Supplier Deliveries Index came in at 62%, an increase of 0.9% since April’s 61.1%. In its 20^th month of slowing growth, the increased ability to meet manufacturing demand is ultimately positive. However, the slowing of this Index points to potential future struggles.
• The Prices Index was up slightly at 79.5%, having increased 0.2% from April. Prices have been increasing for the past 27 months, largely from the increase in raw materials costs as well as demand.
• The Backlog of Orders also increased in May, continuing its 16-month growth trend and rising to 63.5%, up 1.5% from the April Index. These numbers point to manufacturers’ difficulties in meeting increased new order demand in May.

Negative trends

While Inventories, New Export Orders, and Imports fell in May, these Indexes are continuing their overall growth trends, just more slowly. Customers’ Inventories, on the other hand, were shrinking faster and still too low.

• Issues with supplier performance caused manufacturers’ Inventories to decrease to 50.2%, dropping 2.7% from 52.9% in April.
• Customer Inventories also decreased, maintaining below desired levels. They decreased to 39.6% this month, dropping 4.7% from April’s reported 44.3%. These numbers point to an increased backlog of products, likely due to new order growth.
• New Export Orders fell 2.1% from 57.7% in April to 55.6%.
• Imports also decreased, dropping to 54.1% from April’s reported 57.8%, a decrease of 3.7%.

The overall health of the manufacturing industry is following the upward trend of the economy as a whole. Keep an eye out for further developments within the manufacturing sector as these trends develop.