Manufacturing ISM for May 2010 - 59.7%

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The May 2010 ISM Manufacturing Survey is out and PMI came in at 59.7%. This is the 10th consecutive month for expansion. Why is this important? There is a relationship to overall GDP growth.

The past relationship between the PMI and the overall economy indicates that the average PMI for January through May (58.9 percent) corresponds to a 5.7 percent increase in real gross domestic product (GDP). In addition, if the PMI for May (59.7 percent) is annualized, it corresponds to a 6 percent increase in real GDP annually.

The rate of growth as indicated by the PMI is driven by continued strength in new orders and production. Employment continues to grow as manufacturers have added to payrolls for six consecutive months. The recovery continues to broaden as 16 of 18 industries report growth. There are a number of reports, particularly in the tech sector, of shortages of components; this is the result of excessive inventory de-stocking during the downturn.

Hiring finally appears to breathing, with a 59.8 and 1.3% higher than last month. Below is the ISM manufacturing employment graph, normalized to zero, so show the Manufacturing ISM employment expansion and hiring trend.

 

 

The ISM neutral point is 50. Above is growth, below is contraction, although the ISM is this report is noting some variance in the individual indexes (see report). For example, A PMI above 42, over time, also indicates growth. Last month's report overview is here.

MANUFACTURING AT A GLANCE
MAY 2010

Index

 Series
Index
May		 Series
Index
April		 Percentage
Point
Change

Direction

 Rate
of
Change		 Trend*
(Months)
PMI 59.7 60.4 -0.7 Growing Slower 10
New Orders 65.7 65.7 0.0 Growing Same 11
Production 66.6 66.9 -0.3 Growing Slower 12
Employment 59.8 58.5 +1.3 Growing Faster 6
Supplier Deliveries 61.0 61.3 -0.3 Slowing Slower 12
Inventories 45.6 49.4 -3.8 Contracting Faster 2
Customers' Inventories 32.0 33.0 -1.0 Too Low Faster 14
Prices 77.5 78.0 -0.5 Increasing Slower 11
Backlog of Orders 59.5 57.5 +2.0 Growing Faster 5
Exports 62.0 61.0 +1.0 Growing Faster 11
Imports 56.5 58.0 -1.5 Growing Slower 9
             
OVERALL ECONOMY Growing Slower 13
Manufacturing Sector Growing Slower 10

Below is the graph, normalized to 50, on new orders. New orders hit 65.7 in May. It is the same as last month's. New Orders has been expanding for 11 months.

 

 

Production, graphed below, normalized to 50, had an increase of 66.6 and is on it's 12th month in the index black, although it's less than last month's 66.9.

 

 

Inventories, in the below graph (normalized to zero), contracted faster. The ISM reports shortages, particularly in tech sector as the reason. This is consistent with supplier's being slow on deliveries of raw materials to manufacturers. Inventory levels can greatly affect GDP, as seen in the latest report.

 

 

In the comments there is some manufacturing whining about steel prices. I guess that cheap dumping stuff from China was well liked.

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Manufacturing ISM by country

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The WSJ blog has the Manufacturing PMIs in a sortable table, by country.

India, Japan, Ireland, Turkey, Switzerland and Czech Republic saw a faster pace of growth in their purchasing manager indexes in May, while the U.K.’s level was unchanged. The U.S. and China were among the nations that recorded a slower pace of growth last month. Though Dan Greenhaus of Miller Tabak notes that China’s May data is nearly always lower than April.

Switzerland? Who knew!