May 2010 ISM Reports: Manufacturing Gain Slows; Service Sector Steady

The Institute for Supply Management’s (ISM) reports on the manufacturing and service sectors provide a more up-to-date view of conditions than either the Federal Reserve Board’s G.17 report on industrial production and capacity utilization or the U.S. Census Bureau's report on manufacturers’ shipments, inventories and orders.

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"The manufacturing sector grew for the tenth consecutive month during May,” remarked Norbert Ore, chair of ISM’s Manufacturing Business Survey Committee. “The rate of growth, as indicated by the purchasing managers’ index, 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."

Anthony Nieves, chair of ISM’s Non-Manufacturing Business Survey Committee, indicated that – with the Non-Manufacturing Index registering 55.4 percent – the service sector expanded at the same pace in May as in April and March.

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The performance of individual industries that are at least somewhat related to the forest products sector improved “across the board” during May. All industries reported growth in new orders and stable or growing employment. Paper Products and Construction reported growth in new export orders, while imports were unchanged. A Construction respondent commented that "business is steady right now — not the normal spring for construction, but improving."

Inputs cost more in May, although the price increases were smaller than in April. Commodities whose prices rose in May included corrugated products and containers, fuel, lumber and wood products, paper and paper products, and pulp.