May 2014 ISM Reports

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After two corrections, the Institute for Supply Management’s (ISM) monthly opinion survey showed that expansion of economic activity in the U.S. manufacturing sector quickened again in May. The PMI registered 55.4 percent, an increase of 0.5 percentage point from April's 54.9 percent (50 percent is the breakpoint between contraction and expansion). ISM’s manufacturing survey represents under 10 percent of U.S. employment and about 20 percent of the overall economy. Jumps in the production and prices-paid sub-indices were the main sources of support for the expansion.

Comments from the [respondent] panel reflect generally steady growth,” said Bradley Holcomb, chair of ISM’s Manufacturing Business Survey Committee, “but note some areas of concern regarding raw materials pricing and supply tightness and shortages.”

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Wood Products and Paper Products expanded in May, thanks to gains in production, and new and export orders. Paper Products also exhibited expansion in the inventories and backlogged-order sub-indices.

The non-manufacturing sector, which accounts for 80 percent of the economy and 90 percent of employment, picked up the pace of expansion in May. The NMI registered 56.3 percent, 1.1 percentage points higher than April’s 55.2 percent. Two sub-indexes in the NMI – the Business Activity Index (“Overall activity” in the table below) and the New Orders Index – have good correlations to the economy; both grew faster.

“The majority of respondents' comments indicate that that there is steady incremental growth and project a positive outlook on business conditions,” said Anthony Nieves, chair of ISM’s Non-Manufacturing Business Survey Committee.

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All three of the individual service industries we track expanded in May; moreover, all of the respective sub-indices were either unchanged or showed growth.

Commodities up in price included gasoline and diesel, various grades of lumber, paper, natural gas, sulfuric acid, and wood pallets. No relevant commodities were down in price. Wood pallets were 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.