–ISM’s Fiore Still Sees Main Index in 47 to 51 Range; Revenues Remain Strong but Future is Very Cloudy
–Fiore Repeats: Firms Managing Output to Prepare for Pickup in Late Summer, Early Fall
–Fiore: Comments from Some Firms Show There is Concern About Recession in 2024
By Max Sato
(MaceNews) – U.S. manufacturing activity was in contraction territory for the seventh straight month in May as new orders contracted at a faster pace and backlog orders slumped to a 14-year low amid growing uncertainty over the timing of recovery, data from the Institute for Supply Management released Thursday showed.
The ISM survey also indicated that nearly equal numbers of firms are increasing or shedding staff amid mixed sentiment about when significant growth will return, as seen in the previous month.
The sector index compiled by the ISM, which shows general direction, fell 0.2 percentage point to 46.9 in May after rising 0.8 point to 47.1 in April, falling 1.4 points to 46.3 in March and edging up 0.3 point to 47.7 in February. The latest figure is just below the median economist forecast of 47.0.
Regarding the overall economy, this figure indicates a sixth month of contraction after a 30-month period of expansion. The ISM’s manufacturing PMI reading above 48.7, over time, generally indicates an expansion of the overall economy.
The index has been on a gradual downtrend since June 2022. It remains the lowest since May 2020, when the index at 43.5 was recovering from a recent low of 41.8 the previous month during the first wave of the pandemic. The all-time low is 29.4 hit in May 1980.
“The May composite index reading reflects companies continuing to manage outputs to better match demand for the first half of 2023 and prepare for growth in the late summer/early fall period,” Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, said in a statement. “However, there is clearly more business uncertainty in May.”
Fiore told reporters that some firms are concerned about a possible recession in 2024 but that he sticks to his recent outlook that surveyed manufacturing firms are operating in a 47 to 51 range in the index.
“Revenue numbers remain really strong,” he said but added that new orders are down due to uncertainty. “Right now, the future is very cloudy and a lot of that has to do with uncertainty about the overall economy.” The economy is entering the last month of the first half of 2023 and conditions are still bumpy, Fiore said.
Some of the comments from respondents in the latest ISM survey showed that “there is a concern about recession in 2024,” he said. “That’s the first time I have seen that kind of comments this year.”
Companies are not committing to making capital investment at this point, he said.
Among the five subindexes that directly factor into the manufacturing PMI, the new orders index contracted for the ninth consecutive month, plunging 3.1 points to a four-month low of 42.6 in May after edging up 0.8 point to 45.7 in April and falling 2.7 points to 44.3 in March.
“Industrial and high-tech demands are pushing out, as a slowdown is clear,” a company from the electrical equipment, appliances and components industry told the ISM survey.
The production index reading of 51.1 is a 2.2-percentage point increase from 48.9 in April, when it rose 1.1 points, indicating growth for the first time in six months.
The employment index rose 1.2 points to 51.4 in May after popping into expansion territory for the first time in four months in April at 50.2, up 3.3 points from 46.9 in March.
The delivery performance of suppliers to manufacturing organizations was faster for the eighth straight month. The supplier deliveries index at 43.5 percent is 1.1 points lower than 44.6 recorded in April. It remains the lowest since 43.2 in March 2009.
The inventories index fell 0.5 point to 45.8 in May from 46.3 in April, when it fell 1.2 points.
Among other subindexes, the customers’ inventories index rose 0.1 point to 51.4 from 51.3 in April, persisting at the low end of ‘too high’ territory, a negative for future production. It remains the highest in more than six years since September 2016, when it registered 52.5. The all-time high is 56.0 hit in January 2001.
The prices index stood at 44.2 in May, down 9.0 points from 53.2 in April, when it rose 4.0 points from 49.2 in March. “Price instability remains and future demand is uncertain as companies continue to work down overdue deliveries and backlogs,” Fiore said, adding that the price outlook is uncertain.
“While inflation is easing on some discretionary goods, high food costs persist across most categories,” said a firm from the food, beverage and tobacco products industry.
The backlog orders index slumped 5.6 points to 37.5 in May from 43.1 in April, dropping to a level not seen since the Great Recession (33.6 in February 2009).
The new export orders index edged up 0.2 point to 50.0 in May, just above
contraction territory, after rising 2.2 points to 49.8 in April from 47.6 in March, backed by higher-than-expected performance in both Asia and Europe.
The manufacturing sector is in the sixth contracting phase in the past 20 years. Previously, the ISM manufacturing PMI posted contraction just before the pandemic hit the global economy, from August to December 2019 and from March to May 2020. The deepest slump in the past two decades was recorded from September 2008 until July 2009 (the bottom was 34.5 in December 2008) triggered by the U.S. credit crisis.