Non-Manufacturing Report on Business from the Institute for Supply Management Tracks Steady Growth

Manufacturing activity remained in growth territory last month, with nearly across the board increases in some of its key metrics, according to the May edition of the Non-Manufacturing Report on Business from the Institute for Supply Management (ISM).

The NMI, the ISM’s index to measure growth, headed up 0.5 percent to 55.4 in May (a PMI of 50 or greater represents growth), which stands 1.5 percent below the 12-month average of 54.7. The PMI has grown in 17 of the last 18 months, with economic activity in the manufacturing sector expanding for the last 12 months as the overall economy was up for the 60th consecutive month.

Three of the report’s four key metrics, including PMI, were up in May, said ISM. New orders, often known as the engine driving manufacturing, rose 1.8 percent to 56.9 and showed growth for the 12th straight month. Production showed the most growth among the key metrics, up 5.3 percent to 61.0, and employment was down 1.9 percent to 52.8, remaining in growth mode for the 11th straight month.

Comments from ISM member respondents in the report ranged from fairly optimistic to somewhat challenging, when assessing the overall state of manufacturing in respect to their individual industries. And 17 of the 18 sectors tracked by the ISM in the report cited growth in May.

A food, beverage and tobacco products respondent said that increasing demand for product is creating supply and sourcing challenges, and a petroleum & coal products respondent pointed to how improving gas prices are positively impacting his company’s short-term drilling plans.

“The PMI is not only up and growing again but we have now seen month-over-month increases every year this month since the beginning of the year in January,” says Bradley J. Holcomb, CPSM, CPSD, chair of the ISM Manufacturing Business Survey Committee, in an interview with Logistics Management – a sister publication. “We are very much on a positive growth trend at an increasing rate, and at the same time I would not expect that to continue completely in that regard, because you cannot just keep going up and up before you bump your head on the ceiling. I look at it as growth that will continue based on our earlier forecasts.”

The growth in new orders is where ISM expected it to be, explained Holcomb. With the harsh winter weather in the past, coupled with the pent-up demand it brought, he said continued growth in new orders is to be expected and is encouraging.

The more than 5 percent production gain is a reflection of a few things, said Holcomb. One is growth in new orders, as well as manufacturers trying to manage order backlog, which fell 3.0 percent in May to 52.5 and get backlog in manageable condition and pointing in the right direction.

May supplier deliveries dropped 2.7 percent to 53.2 (under 50 indicates faster deliveries), showing slowness at a slower rate as suppliers are starting to catch up, which Holcomb described as positive. Inventories were flat from April to May at 53.0.

Holcomb says it is fair to assume inventories will get leaner in the coming months as increased replenishment activity takes hold.

Prices headed up 3.5 percent to 60, which he said was expected, given that all commodities tracked by ISM showed growth except for four. The 60 figure for prices was not worrisome, according to Holcomb but needs to be viewed with a watchful eye at the same time.

Looking at manufacturing in regards to the general economy, Holcomb said if the economy “was behaving normally and over an extended period of time, it would correlate to a 3.2 percent GDP increase on an annualized basis.”

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