ISM index slides below growth threshold

Index of 49% is lowest since 2009; global slowdown gets much of the blame

06/03/2013


Institute of Supply Management logo. Courtesy: ISMManufacturing’s 2013 slowdown continued in May, as the Institute for Supply Management’s PMI Index slid to 49%, its fourth straight monthly decline and the first that put manufacturing below the 50% threshold indicating growth.

The PMI Index was at 54.2% in February, but has declined each month, as reports of a glowing global manufacturing economy and increasing commodity prices have some manufacturers concerned.

"The PMI registered 49%, a decrease of 1.7 percentage points from April's reading of 50.7%, indicating contraction in manufacturing for the first time since November 2012 and only the second time since July 2009,” said Bradley J. Holcomb, chairman of the Institute for Supply Management’s Manufacturing Business Survey Committee. “This month's PMI reading is at its lowest level since June 2009, when it registered 45.8%. The New Orders Index decreased in May by 3.5 percentage points to 48.8%, and the Production Index decreased by 4.9 percentage points to 48.6%. The Employment Index registered 50.1%, a slight decrease of 0.1 percentage point compared to April's reading of 50.2%.

“The Prices Index registered 49.5%, decreasing 0.5 percentage point from April, indicating that overall raw materials prices decreased from last month,” Holcomb added. “Several comments from the panel indicate a flattening or softening in demand due to a sluggish economy, both domestically and globally.”

Among the comments from committee members:

“Market outlook is relatively flat, with some promise of raw materials inflation relaxing.” (Electrical Equipment, Appliances & Components)

“General economy seems sluggish and pensive. Buyers are not buying much beyond lead times.” (Fabricated Metal Products)

“Downturn in European and Chinese markets is having a negative effect on our business.” (Machinery)

“We are having a difficult time hiring skilled employees.” (Transportation Equipment)

The overall economy marked four straight years of growth, as a PMI above 42.2% indicates overall economic growth. “The past relationship between the PMI and the overall economy indicates that the average PMI for January through May (51.7%) corresponds to a 3% increase in real gross domestic product on an annualized basis. In addition, if the PMI for May (49%) is annualized, it corresponds to a 2.1% increase in real GDP annually.”