Manufacturing Reports Show Little To No Growth

Markit Economics' U.S. manufacturing sample continues to report nearly dead flat conditions, at a final May index of 50.7 which compares with 50.5 for the mid-month flash and a final 50.8 for April. Production is in outright contraction (below 50) for the first time in 6-1/2 years as growth in new orders is as slow as it's been all year. Export orders posted a marginal drop while total backlog orders are also down. The sample, however, increased hiring in an anomaly that won't likely last given the weakness in orders. Efforts to slow inventory accumulation contributed to the decline in production. Price data include an uptick in input costs, tied in part to higher steel prices, but little change for selling prices which is actually an improvement following three straight months of decline.

Negative factors cited by the sample include weak capital investment across the energy sector, uncertainty related to the presidential election and generally subdued economic conditions.

Recent History Of This Indicator:
The manufacturing PMI has slowed to a near standstill, posting a flash May index of 50.5 that was only barely above breakeven 50 and the lowest reading of the economic cycle. Growth in new orders has slowed, inventory inputs are falling, and the sample's production is in outright contraction. Econoday's consensus for the final May reading is unchanged from the flash, at 50.5. 

...meanwhile...

A slowing in delivery times gave a lift to the ISM's manufacturing index which rose 5 tenths to a higher-than-expected but still subdued 51.3 for May. The delivery index jumped 5 points to 54.1 to reflect delays that are often, but perhaps not in this case, tied to strong demand and resulting congestion in the supply chain. In contrast, key readings in the report are mostly little changed with new orders down 1 tenth to 55.7, which is well above 50 and pointing to solid rates of general activity in the months ahead. Export orders, in an important positive, remain above 50, unchanged at 52.5, though total backlog orders moved into contraction, down 3.5 points to 47.0.

Production slowed but remains above 50, down 1.6 points to 52.6. Efforts to work down inventories are a likely factor behind the slowing in production as raw material inventories fell 1/2 point and remain below 50 at 45.0. The prices paid index, which is a measure of input costs, rose 4.5 points and is well above 50 at 63.5 in what is good news for policy makers who are trying to stimulate inflation. The increase in costs likely reflects higher energy prices and also higher steel prices.

Focusing on orders is essential to understand this report -- and new orders are solid and export orders are the highest they've been since November 2014. For a factory sector that has been barely above water, the ISM offers a welcome indication of health.

Recent History Of This Indicator:
The ISM manufacturing index proved soft in April at 50.8 but not new orders which, though slowing, still posted a solidly expansionary 55.8. Export orders were also positive, at 52.5 for the best reading of the year. May's consensus is at 50.6 in a result, however, that would not raise expectations for this stubbornly sluggish sector.