According to the ISM Manufacturing survey, the economy became significantly less good in May 2011:
The PMI registered 53.5 percent and indicates expansion in the manufacturing sector for the 22nd consecutive month. This month’s index, however, registered 6.9 percentage points below the April reading of 60.4 percent, and is the first reading below 60 percent for 2011, as well as the lowest PMI reported for the past 12 months. Slower growth in new orders and production are the primary contributors to this month’s lower PMI reading. Manufacturing employment continues to show good momentum for the year, as the Employment Index registered 58.2 percent, which is 4.5 percentage points lower than the 62.7 percent reported in April. Manufacturers continue to experience significant cost pressures from commodities and other inputs.”
PERFORMANCE BY INDUSTRY
Of the 18 manufacturing industries, 14 are reporting growth in May, in the following order: Nonmetallic Mineral Products; Petroleum & Coal Products; Machinery; Transportation Equipment; Computer & Electronic Products; Textile Mills; Electrical Equipment, Appliances & Components; Primary Metals; Miscellaneous Manufacturing; Paper Products; Chemical Products; Plastics & Rubber Products; Apparel, Leather & Allied Products; and Fabricated Metal Products. The three industries reporting contraction in May are: Printing & Related Support Activities; Furniture & Related Products; and Food, Beverage & Tobacco Products.
WHAT RESPONDENTS ARE SAYING …
- “Chemical prices are under increasing cost pressure, driven by feedstock and transportation costs.” (Chemical Products)
- “Continued growth through beginning of second quarter, with strong backlog and outlook for at least the next three months.” (Electrical Equipment, Appliances & Components)
- “Business levels remain strong — better than last year by 20+ percent, but not back to 2008 or early 2009 levels.” (Fabricated Metal Products)
- “Demand remains strong; however, inflation is evident everywhere in virtually every material purchased.” (Paper Products)
- “Bad weather is impacting retail business.” (Printing & Related Support Activities)
- “Business is still strong, but we are more aware of a possible softening than previously.” (Machinery)
Come on, this is a survey – not data. Since 2000, it tracks no investing or economic fundamental. It is influenced by the mood of the respondent. If the respondent keeps hearing things are getting worse, it colors the response.
The real elements in the survey are covered by the noise – new orders and backlog.
Although I do not take this to the bank, backlog appears to have stopped growing. We have seen the advanced durable goods backlog in April have regressed – yet in April this survey shows strong growth. This month shows no growth.
New orders are significantly less good. For now based on anecdotal data, I would tend to believe that new orders have fallen.
We need to wait for hard data.