Manufacturing Sector Sample Reports Steady To Stronger

Strength with stress is the universal story of the small-sample surveys including PMI manufacturing where the index ends May steady at 56.4. Gains in orders lead the report and include the fastest build for backlog orders in 2-1/2 years. Shipping delays are the longest on record while input costs are climbing and leading to what the report describes as a "marked rise" in selling prices.

...meanwhile...

May's 58.7 headline is very strong but still understates the strength of the ISM manufacturing report. New orders are pouring into the sample, at 63.7 for a 2.5 point jump in the month, while backlog orders, like the PMI manufacturing report, are piling up fast at a very usual level of 63.5 which is a 14-year high. And delivery delays are lengthening dramatically at 62.0 with input prices extremely elevated at 79.5, again both like the PMI report. All this activity is making ISM's sample concerned that inventories of finished goods are too low. The sample is also reporting disruptions tied to metal tariffs and, in a rare comment, the report warns that the sample is discussing second-half price increases.

Small-sample surveys like the ISM have been reporting strong conditions for more than a year but recent reports are clearly pointing to new acceleration. The question for the factory sector is the supply chain and whether it can expand to meet the demand before prices begin to climb.