May 2013 ISM Reports

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The most-closely followed nationwide manufacturing diffusion index contracted in May. The Institute for Supply Management’s (ISM) PMI registered 49.0 percent, a decrease of 1.7 percentage points from April's seasonally adjusted reading of 50.7 percent (50 percent is the breakpoint between contraction and expansion). Expectations had been for a PMI of 51.0 percent, especially after the “booming” Chicago Business Barometer -- which typically is a useful predictor of ISM’s PMI (but in which, during May, virtually all of the comments were strangely despondent despite the upbeat data). This was “the biggest PMI contraction in four years,” MarketWatch observed. Also “the first sub-50 print since November 2012,” added another analyst; and “the New Orders of 48.8, was the worst since July 2012. Both Production and Backlogs tumbled by -4.9 and -5.0 to 48.6, and 48.0 respectively. In brief, of the 11 series tracked by the ISM, only three posted a reading over 50 in May. This compares to just two out of 11 that were below 50 in April.” 

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“Several comments from the [respondent] panel indicate a flattening or softening in demand due to a sluggish economy, both domestically and globally," said Bradley Holcomb, chair of the Institute for Supply Management Manufacturing Business Survey Committee. A Wood Products respondent was representative of the group, saying, "Market was holding strong until mid-month -- then softened."

The pace of growth in the service sector picked up slightly in May. The non-manufacturing index (now known simply as the “NMI”) registered 53.7 percent, 0.6 percentage point higher than April’s 53.1 percent and in line with expectations. The majority of respondents' comments are optimistic about business conditions,” said Anthony Nieves, chair of ISM’s Non-manufacturing Business Survey Committee. (A more accurate description might be “mixed.”) “However,” he added, “there is a degree of uncertainty about the long-term outlook." 

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While non-manufacturing factory orders missed expectations, that miss was made worse by the fact that what was built was not sold (yet) as inventory-to-sales ratio hit a post-recession high.

Wood Products reported a slowdown in activity once again despite employment and import and export orders all picking up (albeit at a slower pace). Paper Products experienced a broader-based expansion. Two of the three service sectors we track reported growth.

Relevant commodities up in price included diesel, caustic soda, corrugated boxes and packaging, and natural gas. Gasoline and lumber (pine, spruce and treated) were variously reported as either up or down in price. Paper was down in price. Lumber (hardwood, pine and plywood) were the only relevant commodities in short supply.

The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.