Third straight decline puts index at lowest level in one year
By Jeffry Bartash , MarketWatch
WASHINGTON (MarketWatch) — Growth in the U.S. manufacturing sector receded in May, owing to fewer orders and less production, according to a closely followed index released Wednesday.
The Institute for Supply Management said its manufacturing gauge fell to 53.5% last month from 60.4% in April, marking the third straight decline and the biggest one-month drop since 1984. It’s also the lowest reading in one year.
Economists surveyed by MarketWatch had expected the index to drop to 57.1%.
Three months ago, the index peaked at a seven-year high of 61.4%.
Although the manufacturing sector is not growing as fast as it was, the industry has still expanded for 22 straight months. Any reading above 50% indicates that manufacturing activity is expanding instead of shrinking.
Still, the decline in the ISM index is the latest in a stream of reports to show slowing in the U.S. manufacturing sector, the fastest-growing part of the economy since the recession ended in mid-2009. Regional reports from Philadelphia, New York and Chicago all showed a sharp slowdown in growth last month.
In recent action, U.S. stocks extended their losses. Read more about U.S. stocks.
Fourteen of the 18 industries tracked by Tempe, Ariz.-based ISM expanded in May, down from 17 in April. Three industries — printing, furniture and food and beverage — contracted.
The ISM’s new-orders index plunged 10.7 percentage points to 51.0%, while the production index sank 9.8 percentage points to 54.0.
The employment index, meanwhile, fell to 58.2% from 62.7% in April, and the inventories gauge declined to 48.7% from 53.6%.
Despite the ISM gauge’s decline, manufacturers who took part in the survey said they still see solid demand for their products.
“Business levels remain strong — better than last year by 20%-plus, but not back to 2008 or early 2009 levels,” one executive of a fabricated-metals company said.
The biggest problem, companies said, was higher prices. The ISM’s prices gauge fell to a still-high 76.5% in May from 85.5% in April.
“Inflation is evident everywhere in virtually every material purchased,” said an executive of a paper-products manufacturer.
The ISM asks about 350 purchasing managers if their business got better or worse over the past month. These senior executives are involved in all sorts of decisions, including hiring, the purchase of raw materials, the delivery of supplies and the management of inventories.
Earlier, a report from ADP showed just 38,000 private-sector jobs created in May.
