Latest Slump in PMI May Have Impact on Manufacturer’s Supply Chains

When the ISM reading of 49.0 is combined with a purchasing managers’ manufacturing index (PMI) score of 52.3, the net is so close to neutral to not call it flat, observe economists.

“That is clearly superior to outright, and persistent, declines in Europe and China, but is a clear downshifting from far more robustness in late 2012 and early 2013,” said IHS Global Insight U.S. economist Michael Montgomery. “Becalmed still beats sinking.”

According to Montgomery, more tepid scores oscillating around 50 loom on the horizon through summer as the goods side of the ledger adjusts to ongoing malaise in Europe, and twin fiscal drags of tax hikes and sequester spending cuts weigh on demand for hard goods.

“Modest gains can resume after the adjustment period, but it looks like a long, cool summer in the manufacturing sector,” he added.

The manufacturing sector turned mildly negative in May, with the ISM-manufacturing index cooling to 49.0 from 50.7, its first sub-50 score of 2013 and its worst showing since June 2009. New orders and production triggered both the drop versus April and the sub-50 reading at 48.8 and 48.6, respectively. Few scores beat 50.

Prices scored a 49.5 for the first sub-50 reading since last July; oil prices probably pushed both the May 2013 and July 2012 readings below water, but other traded commodities are under downward pressure from softness in China and Europe.

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