The Institute for Supply Management index, a closely watched measure of U.S. manufacturing activity, rose in May for the first time since January, hinting that activity is beginning to stabilize following huge market disruptions created by the COVID-19 pandemic.
The index improved to 43.1 in May from an 11-year low of 41.5 in April. The upturn was consistent with the performance of the RSM Manufacturing Outlook Index, which recently showed that the domestic economic manufacturing ecosystem has begun a slow crawl out of a deep recession. Readings below 50 indicate contraction in manufacturing activity.
The ISM’s forward-looking new orders sub-index increased to 31.8 in May from 27.1 in April, but only four industries reported growth in bookings. The survey’s measure of order backlogs at factories rose to 38.2 last month, but that comes on the heels of a significant decline in April to 37.8.
The ISM’s production measure rose to 33.2 from 27.5, while the gauge of factory inventories rose to a one-year high of 50.4, indicating slightly more elevated stockpiles that may negatively impact production in the near-term. The measure of factory employment also advanced to a reading of 32.1, after the historic decline to 27.5 in the prior month, but with many businesses facing near term uncertainty, we do not expect a significant surge in hiring over the next few quarters.
While the most recent data indicates that manufacturers are slowly coming back online, battered local economies, weak export markets, record unemployment and reduced capital spending pose significant headwinds in the near-term. While it should come as no surprise that manufacturers’ immediate focus has been on keeping their employees safe and their business solvent, they must also use this time to chart a new course to achieve their long-term strategic objectives.