- The May ISM manufacturing index increased to 61.2, above market expectations for 60.9. This marked a 0.5 percentage points increase from the April reading of 60.7.
- New orders jumped by 2.7 percentage points to 67.0, while new export orders went up by 0.5 percentage points to 55.4. The backlog of orders sub-index came at 70.6, a 2.4 percentage points jump compared to April.
- Consumption – measured by production and employment sub-indices – subtracted from the headline. Put together, the production (-4.0) and employment (-4.2) sub-indices dropped 8.2 percentage points.
- The supplier deliveries sub-index jumped to 78.8 from 75.0 in April. The sub-index continues to reflect difficulties in maintaining delivery rates due to production issues related to the pandemic.
- 16 of 18 manufacturing industries reported growth in May. Growth was led by Furniture & Related Products, Nonmetallic Mineral Products and Plastics & Rubber Products.
Key Implications
- The overall economy registered the twelfth consecutive month of growth. After last month’s cooling, manufacturing activity has picked up again. The growth in activity was broad-based with new orders and exports registering some of the biggest increases compared to April.
- The jump in backlog of orders continues to show supply struggling to catch up with demand. May’s reading of backlog of orders is the highest since reporting for this sub-index began in January 1993. Meanwhile the increase in supplier deliveries and inventories sub-indices continue to reflect input-driven constraints on production.
- The manufacturing sector’s expansion continues. But not all is fine and dandy. Companies are struggling to meet rising demand due to pandemic-related restrictions and limited availability of inputs. These shortages, along with a difficulty in transporting goods are impacting almost every segment of the manufacturing sector. Meanwhile, the labor market is still weak and businesses are struggling to attract labor. The slowdown in vaccine administration isn’t likely to help either as it would delay re-openings in certain jurisdictions. Moreover, the sector continues to remain vulnerable to another wave of cases and new variants.
