Manufacturing Index Edges Upward

The Institute of Supply Management's Manufacturing Index pushed up 2.7 percentage points in May, the fifth straight monthly improvement in a closely-watched report that showed growing signs that the United States' long-battered factory sector is scaling up orders and production.

At 42.8 percent, the PMI still shows the manufacturing business is contracting for the 16th straight month, according the ISM Report on Business, but the measure reached its highest point since last September and came with a series of other upbeat signs. 

The index for new factor orders moved up 3.9 percentage points to 51.1 percent, the first time that key measure has growing in a year-and-a-half. Separate measures of inventories and customers' inventories also pulled back in May from April while production jumped 5.6 percentage points, suggesting companies may be moving to refill depleted inventory stocks. 

The transportation industry may be about to experience a surge in demand, according to some respondents to the survey. "Some amount of havoc is about to erupt, with companies pushing for increased capacity when suppliers have taken capacity offline."

“New orders are considered a leading indicator, and the index has risen rapidly after bottoming at 23.1 percent in December 2008,” said Norbert J. Ore, chair of the Institute’s survey committee.

“Also, the Customers' Inventories Index remained below 50 percent for the second consecutive month, offering encouragement that supply chains are starting to free themselves of excess inventories as nine industries report their customers' inventories as 'too low.' The prices that manufacturers pay for raw materials and services continued to decline, but at a slower rate than in April," he said.

Five of the 18 manufacturing industries reported growth in May. They were nonmetallic mineral products; plastics & rubber products; machinery; food, beverage & tobacco products; and printing & related support activities.

The industries reporting contraction in May were textile mills; furniture & related products; electrical equipment, appliances & components; fabricated metal products; primary metals; transportation equipment; computer & electronic products; wood products; apparel, leather & allied products; miscellaneous manufacturing; chemical products; petroleum & coal products; and paper products.

Contact Thomas L. Gallagher at tgallagher@joc.com.