Small Improvements For ISM

ISM’s monthly manufacturing report for the month of May was released this morning. For the first time since January, the headline manufacturing number was higher month over month, rising from 41.5 in April to 43.1 in May. While that 1.6 point increase is an improvement, it’s still indicative of contractionary activity (anything below 50 is contractionary) as has been the case since the March report. In other words, similar to what we have seen in the regional Fed reports, activity in May was still declining but not at as rapid of a pace as in April.

In addition to the headline index, most of the sub-indices also improved month over month in May albeit they are also still showing contractionary readings. In fact, every index is still below 50 except for those of Supplier Deliveries and Inventories. Although those two are above 50, it is not necessarily a positive for broader activity as detailed below. Meanwhile, the only two indices that fell deeper into contractionary territory were those of Customer Inventories and Imports.

As we detailed last month, supply chains faced significant disruptions in April due to COVID-19 and that was reflected in the index for supplier deliveries which spiked to 76; its highest level since April of 1974. Higher readings for Supplier Deliveries indicates that delivery times are longer and lower readings indicate shorter delivery times. While May’s survey continues to show long delivery times, it did improve with the index falling 8 points to 68. That was the largest month over month decline for this index since an 8.2 point decline in October of 1981.

Business Inventories was the only other index to come in above 50 in May; reading 50.4. That means business inventories expanded for the first time in a year (since May of 2019 when the index was 51.4). ISM attributed that growth in inventories to businesses trying to get ahead of the aforementioned longer lead times in addition to all around weaker demand.

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