ISM Manufacturing Index: The Institute for Supply Management’s manufacturing index for May ticked up 0.1 point month on month (m/m), to 54.9, weaker than analyst expectations yet still positive. New orders rose two points m/m as 14 of 18 industries reported growth in new orders. Primary metals and machinery were amongst the cohort reporting growth.
The ISM manufacturing index is based on surveys of 400 purchasing managers in 20 industries. The survey is a diffusion index calculated as a percent of responses. A value of 50 is neutral, while less than 50 is contracting and greater than 50 is expansionary,
Figure 1 shows the history of the ISM manufacturing index from 2003 to present. The index is solidly in the expansion region despite the decline from the March score of 57.2. On a 3 month moving average basis the index posted a value 55.6, up 8.4%, 3 months year on year (y/y), and up 7.2% y/y.
Table 1 breaks down the detail of the composite index and sub-indexes. Momentum was positive in most categories. The exceptions were production and new orders. While momentum was not positive, both values are still decidedly bullish scoring 57.1 and 59.5 for production and new orders respectfully. The three month moving average (3MMA) and the 12MMA recorded growth for every category.
The inventory index moved up 0.5 points to 51.5 in May. ISM reports that an inventory index in greater than 42.9 points to growth in the Bureau of Economic Analysis’ figures on overall manufacturing inventories. The difference between new orders and inventories which is considered a proxy for future production strengthened from 6.5 in April to 8 in May. This points toward improvement in factory production for the coming quarters. The employment index jumped 1.5 points to 53.5 in May. Today’s ADP National Employment report revealed that private payrolls added 250,000 job, 8,000 of these were in manufacturing.
The ISM manufacturing index picks-up on both manufacturing output and sentiment. Sentiment is being negatively influenced of late as a result of the current political climate. This helps to explain the recent decline in the index as compared to the first quarter average of 57.0. Overall manufacturing production is expected to rise at a modest pace over the coming months.
At Gerdau we closely monitor the ISM manufacturing index since it is an excellent barometer of the present strength as well as a window on the likely short-run future of US manufacturing.