ISM manufacturing came in stronger than expected for May, while price pressures appeared to come (very slightly) off the boil, albeit not enough to alter the narrative.
At 61.2, the headline print was a touch above the 61 consensus expected.
The range, from more than five-dozen economists, was 59-63.5. ISM’s Timothy Fiore said May’s report “indicate[s] strong sector expansion and US economic growth.” At current levels, the survey suggests the world’s largest economy is expanding at 5.2% annualized rate.
The production gauge dropped, but new orders rose to 67 from 64.3.
Notably, the employment gauge fell to 50.9, barely in expansion territory, from 55.1 in April. Markets probably won’t like that.
All eyes were, of course, on the prices paid index. At 88, it was still very elevated in May, but down from 89.6 in April. “Virtually all basic and intermediate manufacturing materials are experiencing price increases as a result of product scarcity and the dynamics of supply and demand,” Fiore remarked. No industries reported paying lower prices last month.
Customer inventories dropped to the lowest ever, while backlogs rose to 70.6, a new record. At 78.8, the supplier deliveries print was the highest since 1974.
The anecdotes told the story. “Supplier performance — deliveries, quality, it’s all suffering,” one respondent said. “Demand is high, and we are struggling to find employees to help us keep up.”
Meanwhile, the final read on IHS Markit’s manufacturing gauge for May was slightly higher than the flash print. At 62.1, it’s the highest ever. New orders also hit a record and input prices are the highest in 13 years.
Chris Williamson, Chief Business Economist at IHS Markit, told a familiar tale. “US manufacturers are enjoying a bumper second quarter, with the PMI hitting a new high for the second month running in May,” he said Tuesday, adding that “inflows of new orders are surging at a rate unsurpassed in 14 years of survey history [but] elevated levels of other survey indicators are less welcome [as] prices charged by manufacturers are rising at an unprecedented rate, linked to soaring input costs and unparalleled capacity constraints.”
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