ISM Manufacturing Index At Low Side Of Estimates

The factory sector is a listing vessel based on the ISM for May which came in on the low side of estimates at only 52.1. This is the weakest score since October 2016 and shows modest-to-moderate rates of growth for production (51.2), new orders (52.7) and employment (53.7). Backlogs are sharply lower and in contraction, down 6.7 points in May to 47.2 for an unfavorable indication on June employment.

Other readings include easing levels of inventories as well as shortening delivery times, the latter consistent with easing pressure on capacity. Cost pressures are moderate at 53.2.

Of the 18 sectors tracked in ISM's sample, six are reporting contraction which is a large number for this reading. They include apparel, primary metals and fabricated metals. Tariffs are a repeated concern in the respondent comments including related shifts in the supply chain as well as higher prices.

Today's report fits into an unwanted trend. The manufacturing component of the industrial production has fallen steeply this year while factory orders, which are expected to contract in tomorrow's report for April, have been uneven at best. Yet not all the private and regional reports are moving lower but some are including the ISM which is by far the most closely watched source for advanced signals on manufacturing.