May 2011 ISM Reports

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The pace of growth in manufacturing slowed dramatically in May, with the Institute for Supply Management’s (ISM) PMI falling to 53.5, from 60.4 in April. Although the manufacturing sector has been expanding for nearly two years, "this month's index…is the first reading below 60 percent for 2011, as well as the lowest PMI reported for the past 12 months,” said Bradley Holcomb, chair of ISM’s Manufacturing Business Survey Committee. "Slower growth in new orders and production are the primary contributors to this month's lower PMI reading. Manufacturing employment continues to show good momentum for the year, as the Employment Index registered 58.2 percent, [although that] is 4.5 percentage points lower than the 62.7 percent reported in April. Manufacturers continue to experience significant cost pressures from commodities and other inputs."

Wood and Paper Products reverted to a now-familiar pattern, with only Paper Products reporting growth in May. Paper Products’ improvement was fairly broad, encompassing new export and domestic orders, the need to replenish inventories, and increases in production and employment. One Paper Products respondent wrote that "demand remains strong; however, inflation is evident everywhere in virtually every material purchased."
 

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The non-manufacturing sector grew at a somewhat faster pace in May, reflected by a 1.8 percentage point (to 54.6 percent) rise in the non-manufacturing index (now known simply as the “NMI”). All three service industries we track expanded. One Agriculture, Forestry, Fishing & Hunting respondent indicated that "business is okay[, although fuel] prices and truck availability are starting to be a negative force on our supply chain."

The rate of input price increases slowed for both the manufacturing and service sectors. The index of prices paid by manufacturers tumbled by 9.0 percentage points, to 76.5. At the same time, non-manufacturers saw a 0.5 percentage point decline in their index. Copper and steel were the only commodities down in price during May. No relevant commodity was described as in short supply.