Manufacturing in the US contracted more than expected in May as measured by the ISM and by Markit. Output was off as prices paid rose giving an earlier indication of the tariff affect.
Manufacturing in the US contracted more than expected in May as measured by the ISM and by Markit. Output was off as prices paid rose giving an earlier indication of the tariff affect.
US May ISM Manufacturing Index
- 52.1 v 53.0 expected, Prior 52.8
- Lowest since Oct 2016
- Employment 53.7 v 52.4
- Prices paid 53.2 v 50.0 exp
- New orders 52.7 v 51.7 prior
Comments from ISM report:
“Sales remain strong. Labor remains tight. Tariffs are having a significant impact on cost of goods,” said an executive at a company that makes food and beverages.
“The threat of additional tariffs has forced a change in our supply chain strategy; we are shifting business from China to Mexico, which will not increase the number of U.S. jobs.” (Chemical Products)
“Newly increased tariffs on Chinese imports pose an issue on a number of chemicals and materials that are solely produced in China. We are expecting increases in raw materials starting June 1,” said an executive at a company that makes plastic and rubber products.
“Business is continuing to grow and expand. The pressure for driving out costs has increased significantly, and my company is facing major changes over the next several years to remain cost competitive.” (Miscellaneous Manufacturing)
US May final Markit Manufacturing PMI
- 50.5 vs 50.6 prelim prior was 52.6
- Lowest since Sept 2009
- New orders 49.6 vs 49.7 prelim
- Output 50.7 vs 50.8 prelim (prior was 52.7)
- Output lowest since 2016
- Employment at lowest since June 2017
May survey data signalled only a marginal improvement in the health of the U.S. manufacturing sector. The headline PMI fell to its lowest level since September 2009 as output growth eased and new orders fell for the first time since August 2009. Weak demand conditions and ongoing trade tensions led firms to express the joint-lowest degree of confidence regarding future output growth since data on the outlook were first collected in mid-2012. At the same time, employment rose at the slowest rate since March 2017 and backlogs of work were unchanged. Meanwhile, inflationary pressures eased further, with both input costs and output prices increasing at softer rates.
Comments from IHS Markit report:
Chris Williamson, Chief Business Economist at IHS Markit said:
“May saw US manufacturers endure the toughest month in nearly ten years, with the headline PMI down to its lowest since the height of the global financial crisis. New orders are falling at a rate not seen since 2009, causing increasing numbers of firms to cut production and employment. At current levels, the survey is consistent with the official measure of manufacturing output falling at an increased rate in the second quarter, meaning production is set to act as a further drag on GDP, with factory payroll numbers likewise in decline.
“While tariffs were widely reported as having dampened demand and pushed costs higher, both producers and their suppliers often reported the need to hold selling prices lower amid lacklustre demand. While this bodes well for inflation, profit margins are clearly being squeezed as a result.
“With future optimism sliding sharply lower in May, risks to nearterm growth have shifted further to the downside.
“While companies of all sizes are struggling, the biggest change since the strong growth seen late last year is a deteriorating performance among larger companies, where surging order book growth just a few months ago has now turned into contraction, the first such decline seen in the series’ ten-year history.”
SOURCE: ISM, IHS Markit
From The TradersCommunity Research Desk