US manufacturing sector slips into contraction in May

03 June 2013 16:52  [Source: ICIS news]

WASHINGTON (ICIS)--The US manufacturing sector slipped into contraction in May, a respected survey group said on Monday, with new orders, output and exports in decline across many of the nation’s production industries.

In its monthly purchasing managers index (PMI), the Institute for Supply Management (ISM) said that the index fell to 49% in May, a decline of 1.7 percentage points from the April measure of 50.7%.

May’s downturn in the PMI followed two successive months of weakening numbers for the manufacturing sector, according to the ISM data.

From its most recent high of 54.2% in February this year, the index dropped sharply to 51.3% in March and then slipped further toward contraction in April with a barely positive reading of 50.7%.

The PMI is a composite of supplier responses to the ISM’s monthly survey of 10 different business performance measures in 18 major manufacturing sectors.

A PMI reading above 50% indicates the US manufacturing sector is expanding, while an index measure below 50% means production is contracting.

Bradley Holcomb, chairman of the ISM survey committee, noted that May’s decline in the PMI marks the second such contraction in the US manufacturing sector since the end of the recession in June 2009. 

The last contraction was in November last year when the PMI just barely edged down to below the midpoint with a reading of 49.9%.

The May downturn was driven by a variety of negative readings in PMI subsidiary measures.

New orders for manufactured goods fell by 3.5 percentage points in May, production was off by nearly 5 points, exports fell by 3 points and employment was narrowly lower last month by 0.1 point.

The backlog of orders also was down in May, dropping by 5 points, the ISM said.  With new orders in decline, manufacturers’ inventories rose by 2.5 percentage points.

The decline in manufacturing activity was most pronounced, ISM said, in six industries, including chemicals and the combined category of plastics and rubber products. Ten other sectors reported some expansion in the month, and two others were flat for the period.

Holcomb said that comments from survey respondents “indicate a flattening or softening in demand due to a sluggish economy, both domestically and globally”.

An unidentified executive in the plastics industry said that “Customers are anticipating resin price decreases and holding back orders.”

A chemicals executive, also unidentified, said that his company’s decline in sales was “due to softer demand in both domestic and export markets”.

After the end of the 2008-2009 recession in June 2009, the PMI generally registered month-to-month gains although with occasional dips.

Except for the November 2012 dip to 49.9%, the index held in the expansion range of 50% or better and reached its most recent high point of 59.6% in February 2011.

Since then, however, the PMI has seen up-and-down movement but with a general downward trend.

Paul Hodges studies key influences shaping the chemical industry in Chemicals and the Economy

By: Joe Kamalick
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